A company loaned $6,000 to another corporation on December 1,Year 1,and received a 90-day,10 percent,interest-bearing note with a face value of $6,000.The lender's December 31,Year 1,adjusting entry is
A) Interest Receivable $150
Interest Revenue $150
B) Interest Receivable $ 50
Interest Revenue $ 50
C) Interest Revenue $100
Interest Receivable $100
D) Interest Revenue $150
Interest Receivable $150

Question

Quizplus · Accepted Answer

The interest for one month (December) is calculated on the $6,000 at 10% annual rate. Since the note is for 90 days, the monthly interest rate is 10%/12 = 0.8333%. Therefore, the interest for December is $6,000 * 0.8333% = $50. This amount is recognized as Interest Receivable and Interest Revenue for the month of December.

A Company Loaned $6,000 to Another Corporation on December 1,Year