Q12SE - Horngren'S Financial And Managerial Accounting

Question

Question: McKale Corporation has a three-month, $18,000, 9% note receivable from L. Peters that was signed on June 1, 2018. Peters defaults on the loan on September 1.

Journalize the entry for McKale to record the default of the loan

Step-by-Step Solution

Answer

Answer

Step 1: Definition of the dishonoured note receivable

The dishonoured note receivable means  the notes in which borrower defaults in payment at the time of maturity. 

Step 2: Entry for the default of the loan

$$\begin{gathered} \mathbf{Interest} on\mathbf{Note} \mathbf{=}\mathbf{Principal}\mathbf{\times }\mathbf{Rate}\mathbf{\times }\mathbf{Time} \mathbf{Period} \\ \mathbf{=}\mathbf{\$}\mathbf{18}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{9}\mathbf{\%}\mathbf{\times }\frac{\mathbf{3}}{\mathbf{12}} \\ \mathbf{=}\mathbf{\$}\mathbf{405} \end{gathered}$$

Date	Account and explanation	Debit	Credit
September 1	Accounts Receivable- L. Peters	$18,405
	Notes Receivables- L. Peter		$18,000
	Interest Revenue		$405
	(Being entry to record the default of the loan)