Question

When interest is accrued on an interest-bearing note receivable, the Interest Revenue account is Select one: a. Increased; the Interest Receivable account is increased b. None of the above c. Decreased; the Interest Receivable account is increased d. Increased; the Notes Receivable account is decreased e. Increased; the Notes Receivable account is increased

Answer 1

The correct answer is Option A.

Step-by-step explanation:

Note is a promissory note with a written promise made by the borrower to the lender (payee) to pay a certain, definite sum at a specified date.

Interest revenue on the note is calculated as: Principal x Interest Rate x Time

So, when the interest is accrued, the required journals would be:

Debit Interest receivable XXX

Credit Interest revenue XXX

(Interest accrual on notes receivable)

The debit and credit to the corresponding accounts mean an increase.