Rabbit Company Closes Its Accounts on December 31 Each Year

Essay

Rabbit Company closes its accounts on December 31 each year. On December 31, 2016, Rabbit Company accrued interest income totaling $640 that was earned on a $40,000 investment but not yet received or recorded (the investment will pay interest of $1,100 cash on January 31, 2017). On January 31, 2017, the company received the $1,100 cash as interest on the investment.
Prepare journal entries to:
A. Accrue the interest earned on December 31, 2016.
B. Close the Interest Income account on December 31, 2016 (the account has a year-end balance of $2,600 after adjustments).
C. Record the cash receipt of interest on January 31, 2017.