March 17, 20181Allowance for uncollectible accounts1,700Accounts receivable1,700March 30, 2018Note receivable20,0002Cash20,000Interest receivable233May 30, 2018Interest revenue233CashMay 30, 201819,973260Loss on sale of note receivableInterest receivable233Note receivable20,0005June 30, 2018Accounts receivable12,000Sales revenue12,000CashJuly 08, 201811,760Sales discounts240Accounts receivable12,000August 31, 2018Note receivable76,000760Gain on sale of investmentsDiscount on note receivable240Investments5,000December 31, 201 Bad debt expense14,000Allowance for uncollectible accounts14,000December 31, 201 Discount on note receivableInterest revenue

Question
Asked Jun 30, 2019
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Okay, I have everything else in the journal entry except for the last one.  I'm attaching a picture of what I've got so you don't have to worry about explaining all of that. 

Here's the original (complete) problem:

Weldon Corporation’s fiscal year ends December 31. The following is a list of transactions involving receivables that occurred during 2018:
 

Mar.   17   Accounts receivable of $1,700 were written off as uncollectible. The company uses the allowance method.
    30   Loaned an officer of the company $20,000 and received a note requiring principal and interest at 7% to be paid on March 30, 2019.
May   30   Discounted the $20,000 note at a local bank. The bank’s discount rate is 8%. The note was discounted without recourse and the sale criteria are met.
June   30   Sold merchandise to the Blankenship Company for $12,000. Terms of the sale are 2/10, n/30. Weldon uses the gross method to account for cash discounts.
July   8   The Blankenship Company paid its account in full.
Aug.   31   Sold stock in a nonpublic company with a book value of $5,000 and accepted a $6,000 noninterest-bearing note with a discount rate of 8%. The $6,000 payment is due on February 28, 2019. The stock has no ready market value.
Dec.   31   Bad debt expense is estimated to be 2% of credit sales for the year. Credit sales for 2018 were $700,000.

My question:

Dec. 31, 2018: Record accrued interest.

I know it's a debit to Discount on note receivable and a credit to Interest revenue, but I have zero idea how to get the actual number.

Please help me!  My brain is mush at this point... 

Thank you!

 

March 17, 2018
1
Allowance for uncollectible accounts
1,700
Accounts receivable
1,700
March 30, 2018
Note receivable
20,000
2
Cash
20,000
Interest receivable
233
May 30, 2018
Interest revenue
233
Cash
May 30, 2018
19,973
260
Loss on sale of note receivable
Interest receivable
233
Note receivable
20,000
5
June 30, 2018
Accounts receivable
12,000
Sales revenue
12,000
Cash
July 08, 2018
11,760
Sales discounts
240
Accounts receivable
12,000
August 31, 2018
Note receivable
7
6,000
760
Gain on sale of investments
Discount on note receivable
240
Investments
5,000
December 31, 201 Bad debt expense
14,000
Allowance for uncollectible accounts
14,000
December 31, 201 Discount on note receivable
Interest revenue
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March 17, 2018 1 Allowance for uncollectible accounts 1,700 Accounts receivable 1,700 March 30, 2018 Note receivable 20,000 2 Cash 20,000 Interest receivable 233 May 30, 2018 Interest revenue 233 Cash May 30, 2018 19,973 260 Loss on sale of note receivable Interest receivable 233 Note receivable 20,000 5 June 30, 2018 Accounts receivable 12,000 Sales revenue 12,000 Cash July 08, 2018 11,760 Sales discounts 240 Accounts receivable 12,000 August 31, 2018 Note receivable 7 6,000 760 Gain on sale of investments Discount on note receivable 240 Investments 5,000 December 31, 201 Bad debt expense 14,000 Allowance for uncollectible accounts 14,000 December 31, 201 Discount on note receivable Interest revenue

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Expert Answer

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Step 1

Discount on notes receivable: A contra asset account arising when the present value of a note receivable is less than the face amount of the note. The credit balance in this account will be amortized to interest revenue over the life of the note.

Step 2

Calculate present value of note receivable.

PV of notes receivable= Face value of notes receivable – Discount on notes receivable

PV of notes receivable = $6,000 - $240

PV of notes receivable = $5,760

Step 3

Calculate interest revenue:

Interest revenue = PV of notes receivable × Interest rate × Time period

= $5,760 ×8% × (4/12)

...

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