Eastern Trucks sold five trucks to Continental Loggers on November 1 for a total of $175,000. Continental paid $25,000 cash and signed a 12-month note receivable. The face amount of the note was $163,500, which included interest on the note for 12 months. Eastern Trucks prepares to adjust entries annually and plans to amortize straight-line amortization for discount. The adjusting entry made at December 31, by Eastern Trucks year-end, is:
A. Debit Interest Receivable $13,500; Credit Interest Earned $13,500.
B. Debit Interest Receivable $2,250; Credit Interest Earned $2,250.
C. Debit Discount on Notes Receivable $13,500; Credit Interest Earned $13,500.
D. Debit Discount on Notes Receivable $2,250; Credit Interest Earned $2,250.
Answer:D
Eastern Trucks sold five trucks to Continental Loggers on November 1 for a total of $175,000. Continental paid $25,000 cash and signed a 12-month note receivable. The face amount of the note was $163,500, which included interest on the note for 12 months. Eastern Trucks prepares to adjust entries annually and plans to amortize straight-line amortization for discount. The adjusting entry made at December 31, by Eastern Trucks year-end, is:
A. Debit Interest Receivable $13,500; Credit Interest Earned $13,500. B. Debit Interest Receivable $2,250; Credit Interest Earned $2,250. C. Debit Discount on Notes Receivable $13,500; Credit Interest Earned $13,500. D. Debit Discount on Notes Receivable $2,250; Credit Interest Earned $2,250.