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    Dell's Avatar
    Dell Posts: 20, Reputation: 1
    New Member

    Feb 12, 2006, 07:53 AM
    Interest Revenue
    Globo company accepted a $8000. Interest-bearing note receivable from a client on July 1. The note requires payment of 12% annual interest, and both the principal amount of the note and the interest will be due six months later, on Dec.31. If financial statements are prepared at the end of July, which of the following entries will Globo have to make at the end of July?

    1- Interest Revenue 80
    Interest Receivable 80
    2- Interest Receivable 160
    Interest Revenue 160
    3- Interest Receivable 80
    Interest Revenue 80
    4- Interest Revenue 160
    Interest Receivable 160

    Help would be appreciated

    CaptainForest's Avatar
    CaptainForest Posts: 3,645, Reputation: 393
    Ultra Member

    Feb 12, 2006, 03:05 PM
    $8,000 x .12 = $960 in interest per year

    So therefore, 960/12 = $80 interest revenue/month.

    The note was issued July 1, and you must prepare financial statements for the end of July (so, therefore, 1 month of interst).

    Dr. Interest Receivable 80
    Cr. Interest Revenue 80

    The reason you debit Interest Receivable, is because you don't actually receive the cash until Dec 31

    Therefore, the correct answer is (3)
    Dr. Interest Receivable 80
    Cr. Interest Revenue 80
    Dell's Avatar
    Dell Posts: 20, Reputation: 1
    New Member

    Feb 12, 2006, 05:53 PM
    Thanks for your help.

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