XYZ invested $1 million with a bank for 1 year on 1 May 2012 at 6% (interest payable at end of loan).What is the debit side of the adjusting entry at 30 June 2012?

Question

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The bank paid interest on the investment only at the end of the one-year period, which means that as of 30 June 2012 (2 months into the investment), XYZ has earned only 2/12 (or 1/6) of the total interest. Therefore, XYZ should accrue $10,000 (1/6 of $60,000) as revenue receivable on the balance sheet and debit Accrued revenue receivable account for $10,000. Choice B is incorrect because prepayments refer to payments made in advance, which is not applicable in this scenario. Choice C is incorrect because interest revenue will only be recorded at the end of the one-year period. Choice D is incorrect because unearned revenue refers to payments received in advance for goods or services that have not been delivered, which is not applicable in this scenario.

XYZ Invested $1 Million with a Bank for 1 Year