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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 receipt and dishonor of note receivable

Journalize the following transactions of Trapper Jon’s Productions:

June 23. Received a $48,000, 90-day, 8% note dated June 23 from Radon Express Co. on account.
Sept. 21. The note is dishonored by Radon Express Co.
Oct. 21. Received the amount due on the dishonored note plus interest for 30 days at 10% on the total amount charged to Radon Express Co. on September 21.

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.

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 journalize: The entries, to record the transactions.

Explanation

Journalize the entries to record the transactions.

Date Account Title and Explanation Debit ($) Credit ($)
June 23 Notes receivable 48,000  
       Accounts receivable – Company RE   48,000
  (To record the receipt of note on account)    
 
December 31 Accounts receivable – Company RE 48,960  
    Notes receivable   48,000
    Interest revenue (1)   960
  (To record note dishonored)    
 
October 21 Cash 49,368  
    Accounts receivable   48,960
      Interest revenue (2)   408
  (To record the collection of cash on account along with 10% interest)    

Table (1)

Working note:

Calculate the amount of interest revenue accrued till September 21.

Interest revenue accruedtill September 21} = [Notes Receivable×Interest rate×Time in terms of one year]= $48,000×8%×90 days360 days=$960

(1)

Calculate the amount of interest revenue earned for the period from September 22 to October 21

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