Q32PGA - Horngren'S Financial And Managerial Accounting

Question

Accounting for notes receivable and accruing interestCarley Realty loaned money and received the following notes during 2018.Note Date Principal Amount Interest Rate Term

(1) Apr. 1 $ 6,000 7% 1 year

(2) Sep. 30 12,000 6% 6 months

(3) Sep. 19 18,000 8% 90 days

Requirements

1. Determine the maturity date and maturity value of each note.

2. Journalize the entries to establish each Note Receivable and to record the collection ofprincipal and interest at maturity. Include a single adjusting entry on December 31, 2018, the fiscal year-end, to record accrued interest revenue on any applicable note.Explanations are not required. Round to the nearest dollar.

 

Step-by-Step Solution

Answer

(1) Maturity date and maturity value

Note 1- 31 March 2019 and $6,420

Note 2- 31 March 2019 and $12,360

Note 3- 18 December 2018 and $18,355

(2) Journal entries are recorded in Step 3

Step 1: Definition of the maturity date

The maturity date of the note is the date at which the notes become due. On the maturity date, the amount of the notes receivable is received by the company.

Step 2: Maturity date and maturity value

Note	Date	Principal	Time	Maturity date	Year	Value
1	April 1	$6,000	One year	31 March	2019	$6,420
2	September 30	$12,000	Six months	31 March	2019	$12,360
3	September 19	$18,000	90 days	18 December	2018	$18,355

Note 1-

 $\begin{array}{c}\text{Interest=\hspace{0.17em}Principal×Interest×Time}\\ \text{=\$6,000×\hspace{0.17em}7\%×1}\\ \text{=\$420}\end{array}$

Note 2-

 $\begin{array}{c}\text{Interest=\hspace{0.17em}Principal×Interest×Time}\\ \text{=}\frac{\$12,000\times 6\%\times 6}{12}\\ \text{=\$360}\end{array}$

Note 3-

 

$\begin{array}{c}\text{Interest=\hspace{0.17em}Principal×Interest×Time}\\ \text{=}\frac{\$18,000\times 8\%\times 90}{365}\\ \text{=\$355}\end{array}$
 

Step 3: Journal entries

Date	Particulars	Debit	Credit
April 1, 2018	Notes Receivable	$6,000
	Cash		$6,000
	(To entry for notes receivable)
September 30, 2018	Notes Receivable	$12,000
	Cash		$12,000
	(To entry for notes receivable)
September 19, 2018	Notes Receivable	$18,000
	Cash		$18,000
	(To entry for notes receivable)
December 18, 2018	Cash	$18,360
	Notes Receivable		$18,000
	Interest receivable		$360
	(To notes receivable-3 is collected on maturity)
December 31, 2018	Interest Receivable	$315
	Interest revenue		$315
	(To interest accrues on note 1)
December 31, 2018	Interest Receivable	$180
	Interest Revenue		$180
	(To interest revenue accrue on note 2)