On January 1, 2016, Tessa Loaned $12,000 to Another Company

Short Answer

On January 1, 2016, Tessa loaned $12,000 to another company on a three-year, 4% note. No interest was accrued in
2016. Cash will not be received for the interest until the end of the three-year period. The error was discovered before adjusting and closing entries were posted on December 31, 2017. Ignoring income taxes, what should be the correct journal entry on December 31 $$\begin{array} { l c c } \text { a. Interest Receivable } & 480 & \\\quad \text { Retained Earnings } & & 480 \\\text { b. Interest Receivable } & 960 & \\\quad \text { Interest Revenue } & & 960 \\\begin{array} { c c c } \text { c. Interest Receivable }\end{array} & 480 & \\\quad \text { Interest Revenue } & & 480 \\\text { d. Interest Receivable } & 960 & \\\quad \text { Interest Revenue } & & 480 \\\text { Retained Earnings } & & 480\end{array}$$