On September 1, Kennedy Company loaned $120,000, at 8% 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

Question

Konnor Pratt

Business

12 June, 10:23

On September 1, Kennedy Company loaned $120,000, at 8% 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

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Ximena · Answer 1

31 Dec Interest receivable 3200 Dr

Interest revenue 3200 Cr

Explanation:

The interest on note receivable is an income. The accrual principle says that the revenues and expenses for one period should be recorded in that period. So the interest related to the period from September to December, 4 months, should be recorded as interest revenue and interest receivable.

The interest for 4 months is = 120000 * 0.08 * 4/12 = $3200