JAT Corp Loaned $480,000 for Three Years to a Major Supplier

question 56

Multiple Choice

JAT Corp. loaned $480,000 for three years to a major supplier on July 1, 2017. The note stipulated 24% interest to be paid annually each June 30. Since this was an unusual transaction, no one billed the supplier for the interest in 2018 or recorded the accrued interest at the year-end (December) . The supplier did not send in any interest in 2018. On March 1, 2019, after the 2018 books were closed, the CFO found the error. Which one of the following is the correct journal entry to correct the errors thru March 1, 2019? (Ignore income taxes.)

• A) Since it has not been billed, no entry should be made until June 30, 2019.
• B) \[\begin{array} { | l | r | r | }
• \hline \text { Interest Receivable } & 172,800 & \\
• \hline \text { Retained Earnings - Prior-Period Adjustment } & & 172,800 \\
• \hline
• \end{array}\]
• C) \[\begin{array} { | l | r | r | }
• \hline \text { Interest Receivable } & 192,000 \\
• \hline \text { Interest Revenue } & & 19,200 \\
• \hline \text { Retained Earnings - Prior-Period Adjustment } & & 172,800 \\
• \hline
• \end{array}\]
• D) \[\begin{array} { | l | r | r | }
• \hline \text { Interest Receivable } & 172,800 & \\
• \hline \text { Interest Revenue } & & 172,800 \\
• \hline
• \end{array}\]