On April 1, 2020, Clare Barry received a 5%, $600,000 note from John Edwards, a customer. The note is due on March 31, 2021. Clare Barry has a December 31st year-end. Clare Barry's entry on March 31, 2021 to record the payment received would include a credit to interest revenue of

Question

Tessa Gordon

Business

15 January, 00:55

On April 1, 2020, Clare Barry received a 5%, $600,000 note from John Edwards, a customer. The note is due on March 31, 2021. Clare Barry has a December 31st year-end. Clare Barry's entry on March 31, 2021 to record the payment received would include a credit to interest revenue of

+5

Answers (1)

Know the Answer?

Rebecca Cantu · Answer 1

The interest revenue will be credited by $7500 on March 31, 2021.

Explanation:

The 5% interest on $600000 notes is for the whole year. The amount of interest for whole year will be = 600000 * 0.05 = $30000

The important thing to note here is that the year end for Clare Barry is on 21 December which means that on 31st December 2020, we will make adjusting entries and for such a note, an adjusting entry will be passed as,

31 Dec 2020 Interest receivable 22500 Dr

Interest Revenue 22500 Cr

This is because the interest of 22500 from April 2020 to December 2020 relates to the period of 2020 and using accrual principle, we will record this as revenue in 2020.

Thus, on 31 March 2021 we will record the interest revenue that pertains to the period of January 2021 to March 2021 which comes out to be,

Interest Revenue = 30000 * 3/12 = $7500