Chip & Dale, Inc. makes an adjusting entry at the end of the accounting period on investments it owns. As a result, it will show which account on its balance sheet?Single choice
A
Interest payable
B
Interest receivable
C
Interest expense
D
Interest income

Question

Chip & Dale, Inc. makes an adjusting entry at the end of the accounting period on investments it owns. As a result, it will show which account on its balance sheet?

BlackTom AI · Accepted Answer

Because Chip & Dale owns interest‑bearing investments, any interest earned but not yet received at period end must be accrued as an asset called Interest receivable.

1. Relevant knowledge points and concepts
- Accrual accounting requires recognition of revenues when earned, regardless of cash receipt.
- Interest earned on investments is revenue (Interest income) but if cash has not been received by the balance sheet date, an asset (Interest receivable) is created.
- Interest payable is a liability for interest the company owes (when it is the borrower), and Interest expense is the related expense account on the income statement for borrowers.

2. Step‑by‑step reasoning
- Chip & Dale “owns” investments that generate interest income. By period end some interest has been earned but not collected.
- Under accruals, recognize the earned interest now. Make the journal entry to record the accrual:
   - Debit Interest receivable (asset) — to show amount owed to the company.
   - Credit Interest income (revenue on the income statement) — to recognize the earned revenue.
- The balance sheet will therefore include Interest receivable as a current asset (until collected).

3. Intermediate steps / journal entry shown
- Journal entry: Debit Interest Receivable XX; Credit Interest Income XX.
- No cash entry yet, because cash will be received later when payment arrives.

4. Why the correct answer is correct
- Interest receivable appears on the balance sheet because it represents a resource the company controls (future cash inflow) at the reporting date. The adjusting entry increases this asset to reflect accrued but uncollected interest.

5. Why the other choices are incorrect
- Interest payable: a liability for interest the company owes, not relevant when the company is the investor.
- Interest expense: an expense account on the income statement for borrowers; not a balance sheet account.
- Interest income: is a revenue account (income statement), not shown on the balance sheet.

6. Conclusion
The correct balance sheet account shown after the adjusting entry is Interest receivable, which matches the provided answer.

Chip & Dale, Inc. makes an adjusting entry at the end of the accounting period on investments it owns. As a result, it will show which account on its balance sheet?Single choice

Similar Questions

Which of the following entries records the adjustment for interest earned on an investment, but not yet collected?

Supplies should be Blank and Supplies Expense should be Blank for supplies used during the period.

If the adjusting entry to record supplies used during the period is not recorded, then Blank ______.

What are the effects on the accounting equation from the adjustment for revenue earned during the accounting period that had previously been recorded as a liability?

The unadjusted Prepaid Rent is $6,000. Prepaid Rent in the balance sheet column is $5,000. Which of the following entries would have caused this difference?

Match the following types of accounts with a through d for each of the following transactions 1 through 4. 1: Prepaid expense 2: Unearned revenue 3: Accrued expense 4: Accrued revenue

A company sells 12-month popular magazine subscriptions. During the month of May, the company sells $12,000 in magazines, which will start in June. The adjusting entry to record the $1,000 of subscriptions earned in June will include a debit to which account?

More Practical Tools for Students Powered by AI Study Helper

Homework AI Solver

Stylized AI Paper Writer

Plagiarism Checker Assistant

Citation AI Academic Writing Tool

In-Class Translation Assistant

AI Note Generator

AI Quiz Answers

Past Exam Questions from University Test Bank

Smart Practice Assistant

Adaptive Practice

Making Your Study Simpler