1) On October 1 of Year 1, the company made a $50,000 cash loan to another...

1) On October 1 of Year 1, the company made a $50,000 cash loan to another company. The interest rate on the loan is 13%. No cash payments will be collected on the loan until September 30 of Year 2. Which ONE of the following would be included in the ADJUSTING journal entry necessary on December 31 with respect to this loan?

A) DEBIT to Interest Revenue for $6,500

B) CREDIT to Interest Revenue for $4,875

C) CREDIT to Interest Revenue for $1,625

D) CREDIT to Interest Revenue for $6,500

E) DEBIT to Interest Revenue for $4,875

F) DEBIT to Interest Revenue for $1,625

2) On June 1, the company paid $1,200 in advance for 12 months of rent, with the rental period beginning on June 1. This $1,200 was recorded as Rent Expense. [Yes, they did it wrong, but we have to work with what they did.] As of the end of the year, no entry has yet been made to adjust the amount initially (incorrectly) recorded. -- Which ONE of the following will be included in the ADJUSTING ENTRY necessary on December 31?

A) DEBIT to CASH for $700

B) CREDIT to PREPAID RENT for $500

C) DEBIT to RENT EXPENSE for $500

D) DEBIT to PREPAID RENT for $500

E) DEBIT to PREPAID RENT for $700

F) DEBIT to RENT EXPENSE for $700

Solutions

Expert Solution

1) Adjusting entry

Date	account and explanation	Debit	Credit
	Interest receivable (5000013%3/12)	1625
	Interest revenue		1625

So answer is C) CREDIT to Interest Revenue for $1,625

2) Adjusting entry

Date	account and explanation	Debit	Credit
Dec 31	Prepaid rent (1200/12*5)	500
	Rent expense		500

So answer is D) DEBIT to PREPAID RENT for $500

ekkarill92 answered 1 year ago

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