Your business purchased a certificate of deposit on April 1 that will pay $90 interest three months from that date.On April 30,which of the following adjusting journal entries would be made?

Question

Quizplus · Accepted Answer

The certificate of deposit will pay $90 interest three months from April 1, which means it will mature on July 1. The adjusting entry for April 30 (the end of the first month) should recognize only one month of interest, which is 1/3 of the total amount.

Therefore, the adjusting entry should be:

Debit Interest Receivable for $30
Credit Interest Revenue for $30

Option A is incorrect because it records the full amount of interest even though only one month has passed.

Option B is incorrect because it doesn't reflect the correct amount of interest earned.

Option D is incorrect because it reverses the debit and credit accounts.

Your Business Purchased a Certificate of Deposit on April 1