Rose Corp. has a note receivable from Jewel Co for $80,000. The note matures in 5 years and bears interest of 6%. Rose is preparing financial statements for the month of June. Rose should make an adjusting entry:
A) Debiting Interest Revenue for $400 and crediting Interest Receivable for $400.
B) Debiting Interest Receivable for $400 and crediting Interest Revenue for $400.
C) Debiting Interest Revenue for $4,800 and crediting Interest Receivable for $4,800.
D) Crediting Interest Payable for $400 and debiting Interest Expense for $400.

Question

Quizplus · Accepted Answer

Since the financial statements are being prepared for the month of June, an adjusting entry is required to record the interest earned and accrued on the note receivable from Jewel Co for that month. The adjusting entry would involve debiting Interest Receivable (an asset account) for the amount of interest earned but not yet received ($400), and crediting Interest Revenue (a revenue account) for the same amount. Therefore, option B is the correct choice. The other options involve incorrect accounts or amounts.

Rose Corp Has a Note Receivable from Jewel Co for $80,000