Question

On December 31st, your company earned interest on the average 2019 cash balance which will be...

On December 31st, your company earned interest on the average 2019 cash balance which will be paid January 5th, 2020. The average interest rate for the year was 4.0%. Note: Compute the average cash using only the beginning and ending balance.

Can you please give me an equation on how to solve this I have the numbers I just need to know how to calculate the journal entry. I have financial statements for 2017 and 2018

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Homework Answers

Answer #1

· You have asked for the amount of ‘earned interest’.

· It says that interest is to be calculated on the ‘average cash balance’.

· For calculating the average cash balance, you will need to have:
>Beginning cash balance [which would be appearing on 2017’s Balance Sheet asset side.], and
>Ending cash balance [which would be appearing on 2018’s Balance Sheet].

· Equations--------

>Average Cash balance = (Beginning cash balance + Ending cash balance ) / 2

>Interest earned = Interest rate (which is 4%) x Average Cash balance (calculated above)

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