Harper Company lends Hewell Company $28,800 on March 1, accepting a four-month, 12% interest note. Harper Company prepares financial statements on March 31. What adjusting entry should be made before the financial statements can be prepared

Question

Business

Erik Lucas

4 July, 20:04

Harper Company lends Hewell Company $28,800 on March 1, accepting a four-month, 12% interest note. Harper Company prepares financial statements on March 31. What adjusting entry should be made before the financial statements can be prepared

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Aarav Mitchell · Answer 1

Dr Interest income accrued $288

Cr Interest income revenue $288

Explanation:

When preparing financial statements at the end of March, there is a need to recognize the interest income of one month, that is the interest accrued from 1st March to the end of March in the books of Harper Company, which is computed thus:

$28,800*12%*1/12=$288

The accrued interest income should be debited to accrued income and credit interest income, since an increase in income is naturally a credit in the income account and accrued interest is an asset that should be debited.