Q8BE - Intermediate Accounting (Kieso)

Question

Included in Gonzalez Company’s December 31 trial balance is a note receivable of \(12,000. The note is a 4-month, 10% note dated October 1. Prepare Gonzalez’s December 31 adjusting entry to record \)300 of accrued interest, and the February 1 journal entry to record receipt of $12,400 from the borrower.

Step-by-Step Solution

Answer

The total amount of cash received is $12,400.

Step by Step Solution Step 1: Meaning of Journal Entry

Journal entries are the first step in the accounting cycle. Journal entry is used to record all the business transactions and events. In recording the journal entry, the debit and credit should be equal.

Step 2: Journal Entries:

Gonzalez’s December 31 adjusting entry and February 1 journal entry are as follows:

Journal Entry
Date	Accounts Titles and Explanations	Debit	Credit
December 31	Interest Receivable	$ 300
	Interest Revenue		$ 300
February 1	Cash	$ 12,400
	Notes Receivable		$ 12,000
	Interest Receivable		$ 300
	Interest Revenue		$ 100

Working notes:

Interest Revenue = $ 300 (Given)

Notes Receivable = $ 12,000 (Given)

Interest Receivable = $ 300 (Given)

Interest revenue = [ $12,000 × 10% × 1/12] = $100

Cash = $12,400 (Given)

• Interest revenue only calculated for January month i.e., 1 month.