Question

On January 1, a company lends $90,000 to a customer for one year at a 7% annual interest rate. The note requires the payment of interest twice each year on June 30 and December 31. The company records adjusting entries on a monthly basis. At the end of each month in which the company does not receive any interest payments, the company:

A) records an entry with a debit to Cash of $525 and a credit to Interest Revenue of $525.

B) records an entry with a debit to Notes Receivable of $525 and a credit to Cash of $525.

C) records an entry with a debit to Interest Receivable of $525 and a credit to Interest Revenue of $525.

D) does not record an adjusting entry, since no transaction has occurred.

Answer

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