Question

Exercise 240 These transaction took place for Sanders Co. 2016 May 1 Received a $15,000, 1-year, 9% note in exchange for an outstanding account receivable from T. Foley. Dec.31 Accrued interest revenue on the T. Foley note. 2017 May 1 Received principal plus interest on the T. Foley note. (No interest has been accrued since December 31, 2016.)Record the transaction in general journal.

Answer 1

Answer:

                                     Debit     Credit

1) Note Receivable         15000

  Account Receivable                  15000

2) Accrued Interest   900

   Interest Revenue                     900

3) Cash                     1200

   Accrued Interest                      900

   Interest Revenue                      300

4) Cash                      15000

   Note Receivable                    15000

Explanation:

Dec 31 Accrued interest will be calculated by dividing the total interest payment of the year by 12 and multiplying it by 8 as May 1 -Dec 31 is 8 months

So 0.09 *15000/8/12=900

May 2017 Interest  payment recorded by calculating the total interest payment (15000*0.09)=1200 (cash debited)

And Accrued interest from previous year and this years interest revenue (4/12*1200) will be credit

15000 note receivable credited and 15000 cash debited for the principal repayment.