On July 1,2017,Falcon Company received a $20,000 promissory note from Jordyn Company.The annual interest rate is 5%.Principal and interest are paid in cash at the maturity date of June 30,2018.
If Falcon's fiscal year ends September 30,2017,an adjustment is needed to

Question

On July 1,2017,Falcon Company received a $20,000 promissory note from Jordyn Company.The annual interest rate is 5%.Principal and interest are paid in cash at the maturity date of June 30,2018. ​
If Falcon's fiscal year ends September 30,2017,an adjustment is needed to

Quizplus · Accepted Answer

Since Falcon's fiscal year ends on September 30, 2017, only three months of interest have accrued on the note (from July 1, 2017, to September 30, 2017), which is calculated as $20,000 × 5% × 3/12 = $250. Therefore, an adjustment is needed to increase interest receivable by $250 to reflect the portion of interest that has been earned but not yet received. Choices A and D are incorrect because the full amount of interest ($1,000) will not be earned until the maturity date of June 30, 2018. Choice B is incorrect because the note receivable amount has not changed and should not be adjusted.

On July 1,2017,Falcon Company Received a $20,000 Promissory Note from Jordyn