On March 1, 2021, Bearcat lends an employee $16,000. The employee signs a note requiring principal and interest at 12% to be paid on February 28, 2022. Record the adjusting entry for interest at its year-end of December 31.

Given that,

Amount of money lend to employees on March 1, 2021 = $16,000

Rate of interest = 12 percent

Interest amount and principal to be paid on February 28, 2022.

Interest is accrued on December 31,

Time period = From March 1, 2021 to December 31, 2021

                    = 10 months

Accrued Interest amount = Principal amount × Interest rate × Time period

                                          = $16,000 × 0.12 × (10 ÷ 12)

                                          = $1,600

Therefore, the adjusting journal entry is as follows:

Interest receivable A/c Dr. $1,600

         To interest income                $1,600

(To record the interest on amount given to employees is accrued and adjusted)

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