Coronado Company lends Wildhorse Company $9600 on April 1, accepting a four-month, 8% interest note. Coronado Company prepares financial statements on April 30. What adjusting entry should be made before the financial statements can be prepared?
A. Debit note receivable $40,000; Credit Cash $40,000.
B. Debit interest receivable $150; Credit interest revenue $150.
C. Debit cash $150; Credit interest revenue $150.
D. Debit interest receivable $600; Credit interest revenue $600.

B. Debit interest receivable $150; Credit interest revenue $150.

Explanation:

On short term loan given the interest is received on the amount of the loan. At the year end the interest income is accrued and not be recorded for only one month because on April 30 only 1 month has passed after April 1.

Interest Income = $9,600 x 8% x 1/12 = $64

There is no option for $64.

The Data given was inconsistent with the options given, the answer is also mad for the following similar and correct question.

Post Company lends Blue Company $40,000 on April 1, accepting a 4 month, 4.5% interest note. Post Company prepares financial statements on April 30. What adjusting entry should they make?

Debit note receivable $40,000; Credit Cash $40,000

Debit interest receivable $150; Credit interest revenue $150

Debit cash $150; Credit interest revenue $150

Debit interest receivable $600; Credit interest revenue $600

On short term loan given the interest is received on the amount of the loan. At the year end the interest income is accrued and not be recorded for only one month because on April 30 only 1 month has passed after April 1.

Interest Income = $40,000 x 4.5% x 1/12 = $150

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