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?单项选择题
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?单项选择题

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