West County Bank agrees to lend Sandhill Co. $508,000 on January 1. Sandhill Co. signs a $508,000, 6%, 6-month note. What is the adjusting entry required if Sandhill Co. prepares financial statements on March 30?
Interest are additional income or payment related to the use of money of others. Common assets that bears interest are cash, loan receivable and notes receivable.
Answer and Explanation:
Answer : a.
Interest of 6% imputed on the note is always considered as an annual rate, unless otherwise stated. Therefore interest for the 3-month period (January 1 to March 30) is computed as follows:
Interest = Face Value * Rate * Period
Interest = $508,000 * 6% * 3/12
Interest = $7,620
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from Financial Accounting: Help and ReviewChapter 5 / Lesson 18