What is the correct answer and why? Multiple Choice Questions-3 Points Each se t

Question

What is the correct answer and why?
Multiple Choice Questions-3 Points Each se the following information to answer the next 3 questions: On March 1, 2017 Sandgate, Inc. borrowed $220,000 from Bank of the East on an 8- onth, 5% note, with all principal and interest due at maturity on October 31, 2017. Both Sandgate and Bank of the East prepare adjusting entries and financial statements monthly. 1. What adjusting entry would Bank of the East make on March 31 2017? Credit Debit 917 A) Interest receivable 917 Interest revenue 1,375 B.z Interest receivable 1,375 Interest revenue 7,333 C. Interest receivable Cash 7,333 n No entry is necessary since the note is not due until October 31, 2017 2. What would Sandgate, Inc. show on its balance sheet dated March 31, 2017 regarding this loan? A. Notes payable and Interest receivable B. Notes payable and Interest payable CInterest expense and Interest payable D. Notes receivable and Interest receivable 3. How much interest expense will Sandgate, Inc. report on its income statement fo the year ended December 31, 2017 as a result of this loan? A. $11,000 8 $16,500 C $7,333 D. None, because the note was paid off on October 31, 2017

Explanation / Answer

1) Option a is correct
Interest Receivables( For bank its due from the customer so it will be debited) = $220,000 x 5% x 1/12 = $917
Interest Revenue = Credited because its income for the bank.
2) option b is corrrect
Notes payable - Current Liabilities (Its a loan for sandgate)
Interest Payable - Current liabilities (Interest is due on loan)
3) option c = $220,000 x 5% x 8/12 months = $7333
4) option A
Accounts receivables debited as amount is due from Sarpy city
Service Revenue Credited as Clinton provides services.

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