Ask Question
2 February, 16:23

On September 1, Kennedy Company loaned $135,000, at 10% annual interest, to a customer. Interest and principal will be collected when the loan matures one year from the issue date. Assuming adjustments are only made at year-end, what is the adjusting entry for accruing interest that Kennedy would need to make on December 31, the calendar year-end

+1
Answers (1)
  1. 2 February, 19:43
    0
    Dec 31 Interest Receivable $4500 Dr

    Interest Revenue $4500 Cr

    Explanation:

    The loan is for one year and the interest rate 10% is annual interest rate. Thus the tota interest revenue on loan for one yar will be,

    interest revenue = 135000 * 0.1 = 13500

    The adjusting entry is made on 31 december i. e. 4 months after the loan was granted to the customer. So, following the accrual basis, the 4 month's interest relates to this yeaar's period and the interest revenue will be recorded on 31 december along with a debit to interest receivable.

    The 4 month's interest revenue = 13500 * 4/12 = 4500
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “On September 1, Kennedy Company loaned $135,000, at 10% annual interest, to a customer. Interest and principal will be collected when the ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers