Answer:
Explanation:
1. The computation of the term of the note is shown below:
It is computed from the November 19 to March 19
So,
November - 11 days
December - 31 days
January - 31 days
February - 28 days
March - 19 days
Total - 120 days
2. In this part, we apply the simple interest formula which is shown below:
Simple interest = Principal × interest rate × (number of days ÷ total number of days in a year)
$135 = $4,500 × interest rate × 120 days ÷ 360 days
$135 = $4,500 × interest rate × 0.3333
So, the interest rate is 9%
We assume the 360 days in a year
And, the simple interest is computed by $4,635 - $4,500 = $135
3. The journal entry is shown below:
Interest expense A/c Dr
To Interest payable
(Being the interest expense is recorded)
The computation of the interest expense is shown below:
= November note receivable × interest rate × (number of days ÷ total number of days in a year)
= $4,500 × 9% × 42 days ÷ 360 days
= $47.25
We assume the entry is made on November 19 and the books are closed on December 31
So, the 42 days would be 11 days of November and 31 days of December
