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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Entries for notes receivable, including year-end entries

The following selected transactions were completed by Fasteners Inc. Co., a supplier of buttons and zippers for clothing:

20Y3  
Nov. 21. Received from McKenna Outer Wear Co., on account, a $96,000, 60-day, 3% note dated November 21 in settlement of a past due account.
Dec. 31. Recorded an adjusting entry for accrued interest on the note of December 3.
20Y4  
Jan. 20. Received payment of note and interest from McKenna Outer Wear Co. Journalize the entries to record the transactions.

To determine

Note receivable:

Note receivable refers to a written promise for the amounts to be received within a stipulated period of time. This written promise is issued by a debtor or borrower to lender or creditor. Notes receivable is an asset of a business.

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.

To journalize: The entries, to record the transactions.

Explanation

Journalize the entries to record the transactions.

Date Account Title and Explanation Debit ($) Credit ($)
November 21, 20Y3 Notes receivable 96,000  
       Accounts receivable – Company MOW   96,000
  (To record the money loaned on note)    
 
December 31, 20Y3 Interest receivable 320  
    Interest revenue (1)   320
  (To record the interest revenue accrued on the note)    
 
January 20, 20Y4 Cash 96,480  
    Notes receivable   96,000
      Interest receivable (1)   320
      Interest revenue (2)   160
  (To record the collection of cash on note in full)    

Table (1)

Working note:

Calculate the amount of interest revenue accrued as on December 31, 20Y3.

Interest revenue accruedas on December 31, 20Y3,} = [Notes Receivable×Interest rate×Time in terms of one year]= $96,000×3%×Number of days accrued fromNovember 21 till December 31360 days=$96,000×3%×40 days360 days=$320

(1)

Calculate the amount of interest revenue earned for the period from January 1 to January 20

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