Question

Harper Company lends Hewell Company $28,800 on March 1, accepting a four-month, 12% interest note. Harper Company prepares financial statements on March 31. What adjusting entry should be made before the financial statements can be prepared

Answer 1

Dr Interest income accrued $288

Cr Interest income revenue $288

Step-by-step explanation:

When preparing financial statements at the end of March,there is a need to recognize the interest income of one month,that is the interest accrued from 1st March to the end of March in the books of Harper Company,which is computed thus:

$28,800*12%*1/12=$288

The accrued interest income should be debited to accrued income and credit interest income,since an increase in income is naturally a credit in the income account and accrued interest is an asset that should be debited.