Harper Company lends Hewell Company $9,600 on March 1, accepting a four-month, 5% interest note. Harper Company prepares financial statements on March 31. What adjusting entry should be made before the financial statements can be prepared?

Select the correct answer.

A. Cash$40

Interest Revenue$40

B. Interest Receivable$160

Interest Revenue$160

C. Interest Receivable$40

Interest Revenue$40

D. Note Receivable$9,600

Cash$9,600

C. Interest Receivable$40

Interest Revenue$40

Explanation:

The adjusting entry is shown below:

Interest receivable Dr $40

To Interest revenue $40

(Being the accrued interest is recorded)

The computation is shown below:

= $9,600 * 5 months * 1 months : 12 months

= $40

For recording this journal entry we debited the interest receivable as it increased the assets and credited the interest revenue as it also increased the revenues

And the one month is taken from March 1 to March 31