On December 1, 2017, Physical Bank Made a Loan to a Customer

question 17

Multiple Choice

On December 1, 2017, Physical Bank made a loan to a customer of $2,000,0000, with an annual interest rate of 6%. The loan, and all the interest, are due on November 30, 2018. The appropriate adjusting entry the bank should make on December 31, 2017 is

• A) Debit cash $10,000 and credit interest revenue $10,000
• B) Debit interest revenue $10,000 and credit cash $10,000
• C) Debit interest receivable $10,000 and credit interest revenue $10,000
• D) Debit interest revenue $10,000 and credit interest receivable $10,000

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Definitions:

Cash Inflows

The total amount of money being received by a company, usually from its operations, investments, or financings.

Depreciation Expense

Refers to the allocation of the cost of a tangible asset over its useful life.

Incremental Net Income

The increase in net income resulting from a particular business decision compared to the scenario where the decision is not made.

Income Tax Expense

The amount of money a company or individual owes in taxes based on the taxable income for a given period, typically one year.