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Details of notes receivable and related entries Gen-X Ads Co. produces advertising videos. During the current year ending December 31, Gen-X Ads received the following notes: Date Face Amount Term Interest Rate 1 . Jan. 14 $33,000 30 days 4% 2. Mar. 9 60,000 45 days 7 3. July 12 48,000 90 days 5 4. Aug. 23 16,000 75 days 6 5. Nov. 15 36,000 60 days 8 6. Dec. 10 24,000 60 days 6 Instructions 1. Determine for each note (A) the due date and (B) the amount of interest due at maturity, identifying each note by number. 2. Journalize the entry to record the dishonor of Note (3) on its due date. 3. Journalize the adjusting entry to record the accrued interest on Notes (5) and (6) on December 31 4. Journalize the entries to record the receipt of the amounts due on Notes (5) and (6) in January and February.

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Corporate Financial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781305653535

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Chapter
Section
BuyFindarrow_forward

Corporate Financial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781305653535
Chapter 8, Problem 8.4BPR
Textbook Problem
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Details of notes receivable and related entries

Gen-X Ads Co. produces advertising videos. During the current year ending December 31, Gen-X Ads received the following notes:

  Date Face Amount Term Interest Rate
1. Jan. 14 $33,000 30 days 4%
2. Mar. 9 60,000 45 days 7
3. July 12 48,000 90 days 5
4. Aug. 23 16,000 75 days 6
5. Nov. 15 36,000 60 days 8
6. Dec. 10 24,000 60 days 6

Instructions

  1. 1. Determine for each note (A) the due date and (B) the amount of interest due at maturity, identifying each note by number.
  2. 2. Journalize the entry to record the dishonor of Note (3) on its due date.
  3. 3. Journalize the adjusting entry to record the accrued interest on Notes (5) and (6) on December 31
  4. 4. Journalize the entries to record the receipt of the amounts due on Notes (5) and (6) in January and February.

1.

To determine

Note receivable:

Note receivable refers to a written promise received by the creditor from the debtor in formal, for the amounts to be settled within a stipulated period of time. This written promise is issued by a debtor or borrower to the lender or creditor. Notes receivable is an asset of a business. Notes receivable often used for the credit periods of more than 60 days.

Due date:

Due date is the maturity date on note, on due date the borrower is supposed to repay the face value of the note along with interest.

Interest on note:

Interest on note is the amount charged on the principal value of note for the privilege of borrowing money. Interest is to be paid by the borrower and to be received by the lender.

Dishonored note:

Note receivable refers to a written promise by the debtor for the amounts to be received within a stipulated period of time. Note is otherwise known as promissory note. If this promissory note is not settled by the debtor at its maturity date, then it became is known as dishonored note.

To determine: (a) the due date and (b) the amount of interest due at maturity.

Explanation of Solution

Working note:

For note 1:

Calculate the amount of interest due at maturity.

Total interest=[Face amount ×Annual interest rate×Time in terms of year]=[$33,000×4%100×30 days360 days]=$110 (1)

For note 2:

Calculate the amount of interest due at maturity.

Total interest=[Face amount ×Annual interest rate×Time in terms of year]=[$60,000×7%100×45 days360 days]=$525 (2)

For note 3:

Calculate the amount of interest due at maturity.

Total interest=[Face amount ×Annual interest rate×Time in terms of year]=[$48,000×5%100×90 days360 days]=$600 (3)

For note 4:

Calculate the amount of interest due at maturity

2.

To determine

To journalize: The dishonor of Note (3) on its due date.

3.

To determine

To journalize: The adjusting entry to record the accrued interest on Notes (5) and (6) on December 31.

4.

To determine

To journalize: The entries to record the receipt of the amounts due on Notes (5) and (6) in January.

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Corporate Financial Accounting
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