A company lends a major client $90,000 for one year at a 7% annual interest rate.Interest payments are to be made twice a year but the company wants to recognize interest earned on a monthly basis.In a month in which the company does not receive any interest payments,interest is recorded with:

Question

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Since the company wants to recognize interest on a monthly basis, an adjusting entry needs to be made at the end of each month. If the company does not receive any interest payments in a month, it means that the interest is accrued and should be recorded as Interest Receivable. Therefore, the correct entry is a debit to Interest Receivable for $525 and a credit to Interest Revenue for $525. Option A is incorrect because it debits Cash, which is not correct. Option B is incorrect because Notes Receivable is not involved in this scenario. Option D is incorrect because an adjustment needs to be made for the accrued interest.

A Company Lends a Major Client $90,000 for One Year