Uniform Supply accepted a $4,800, 90-day, 10% note from Tracy Janitorial on October 17.
- What entry should Uniform Supply make on December 31, to record the accrued interest on the note?
A) Debit Interest Receivable $20; credit Interest Revenue $20.
B) Debit Cash $100; credit Notes Receivable $100.
C) Debit Interest Receivable $100; credit Interest Revenue $100.
D) Debit Cash $120; credit Interest Revenue $100; credit Interest Receivable $20.
E) Debit Cash $20; credit Notes Receivable $20.

Question

Quizplus · Accepted Answer

The interest on the note is calculated as follows: 
Principal x Rate x Time = Interest
$4,800 x 10% x (90/360) = $120

Therefore, Uniform Supply should debit Interest Receivable for $120 and credit Interest Revenue for $120 on December 31 to record the accrued interest on the note. Option C is the correct answer because it reflects these journal entries.

Uniform Supply Accepted a $4,800, 90-Day, 10% Note from Tracy