What Is the Adjusting Entry to Record Interest for Elegant

question 34

Multiple Choice

What is the adjusting entry to record interest for Elegant Company (the debtor) as of December 31 if Pristine Company (the holder of the note) receives a $29,000, 90-day, 12% note on December 10th from Elegant Company (debtor) ? (Use a 360-day year. Do not round any intermediate calculations. Round your final answer to the nearest dollar.)

• A) Debit to Interest Income of $870; credit to Interest Receivable of $870.
• B) Debit to Interest Payable of $203; credit to Interest Expense of $203.
• C) Debit to Interest Expense of $203; credit to Interest Payable of $203.
• D) Debit to Interest Receivable of $870; credit to Interest Income of $870.

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Definitions:

Payee

The individual or entity to whom a check, draft, or note is made payable.

Certified Check

is a check for which the issuing bank guarantees availability of funds by verifying the account's balance and then setting aside the check amount.

Cashier's Check

A check issued by a bank, drawn on its own funds rather than that of a personal account, and signed by a cashier.

Drawer's Liability

Refers to the obligation of the drawer (the person who writes a cheque or draft) to ensure the availability of funds in the account for the amount specified for payment to the payee.