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Harper Company lends Hewell Company $40,000 on March 1, accepting a four-month, 6% interest note. Harper Company prepares financial statements on March 31. What adjusting entry should be made before the financial statements can be prepared?
a. Notes Receivable 40,000; Cash 40,000
b. Interest Receivable 800; Interest Revenue 800
c. Interest Receivable 200; Interest Revenue 200
d. Cash 200; Interest Revenue 200

Respuesta :

Answer:

Option (c) is correct.

Explanation:

Given that,

Harper Company lends Hewell Company = $40,000

on March 1,

Accepting a four-month, 6% interest note.

The adjusting entry by the company would be related to interest for 1 month in the month of march:

Interest accrued would be:

[tex]=Lending\ amount\times\ interest\ rate\times time\ period[/tex]

[tex]=40,000\times 0.06\times \frac{1}{12}[/tex]

= $200

Therefore entry for interest receivable would be:

Interest Receivable A/c   Dr.    $200

To Interest revenue                              $200

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