Question

On January 1, a company lends $90,000 to a customer for one year at a 7% annual interest rate. The note requires the payment of interest twice each year on June 30 and December 31. The company records adjusting entries on a monthly basis. At the end of each month in which the company does not receive any interest payments, the company:

Answer 1

Answer:

Debit Interest Receivable $525

Credit Interest Revenue $525

Explanation:

Preparation of the journal entry when the company does not receive any interest payments

Debit Interest Receivable $525

Credit to Interest Revenue $525

Calculated as:

Monthly interest revenue=$90,000*7%*(1/12)

Monthly interest revenue=$525

Therefore At the end of each month in which the company does not receive any interest payments, the company should Debit Interest Receivable $525 and Credit Interest Revenue $525