Asked by Derise Major on Jun 16, 2024
Verified
On November 19,Nicholson Company receives a $15,000,60-day,8% note from a customer as payment on account.What adjusting entry should be made on the December 31 year-end? (Use 360 days a year.)
A) Debit Interest Receivable $1,200; credit Interest Revenue $1,200.
B) Debit Interest Receivable $140; credit Interest Revenue $140.
C) Debit Notes Receivable $140; credit Interest Revenue $140.
D) Debit Notes Receivable $140; credit Interest Receivable $140.
E) Debit Interest Revenue $200; credit Interest Receivable $200.
Accrued Interest
Interest that has been incurred but not yet paid, typically recorded as an expense for the period it relates to.
Year-End
The conclusion of an accounting period, typically the end of the fiscal or calendar year, when companies finalize their financial statements.
60-Day Note
A financial instrument or a loan agreement that requires repayment of the principal amount along with any accrued interest within 60 days.
- Undertake and chronicle transactions in relation to notes receivable, comprising the evaluation of interest and actions taken on dishonored notes.
Verified Answer
RB
ravel bembridgeJun 18, 2024
Final Answer :
B
Explanation :
First, we need to calculate the interest on the note using the formula: principle amount x annual interest rate x time in terms of one year.
$15,000 x 0.08 x 60/360 = $140
Therefore, we need to debit Interest Receivable for $140 and credit Interest Revenue for $140 to recognize the interest earned but not yet received on the note as an adjusting entry on the December 31 year-end.
$15,000 x 0.08 x 60/360 = $140
Therefore, we need to debit Interest Receivable for $140 and credit Interest Revenue for $140 to recognize the interest earned but not yet received on the note as an adjusting entry on the December 31 year-end.
Learning Objectives
- Undertake and chronicle transactions in relation to notes receivable, comprising the evaluation of interest and actions taken on dishonored notes.