Question

Sheffield Company lends Pharoah Company $10100 on April 1, accepting a four-month, 12% interest note. Sheffield Company prepares financial statements on April 30. What adjusting entry should be made before the financial statements can be prepared?

Answer 1

Answer:

The answer is:

• Dr Interest receivable 303
• Cr Interest revenue 303

Explanation:

The total interest Sheffield Company will charge during the four months is $1,212, equivalent to $303 per month. Since only one month has passed since the debt was made, Sheffield should record revenue for one month interest:

• Dr Interest receivable 303
• Cr Interest revenue 303