Question

Gen-X Ads Co. produces advertising videos. During the current fiscal year, Gen-X Ads Co. received the following notes: Date Face Amount Term Interest Rate 1. Jan. 14 $33,000 30 days 4% 2. Mar. 9 60,000 45 days 7% 3. July 12 48,000 90 days 5% 4. Aug. 23 16,000 75 days 6% 5. Nov. 15 36,000 60 days 8% 6. Dec. 10 24,000 60 days 6% Required: 1. Determine for each note (a) the due date and (b) the amount of interest due at maturity, identifying each note by number. 2. Journalize the entry to record the dishonor of Note (3) on its due date. Refer to the Chart of Accounts for exact wording of account titles. 3. Journalize the adjusting entry to record the accrued interest on Notes (5) and (6) on December 31. Refer to the Chart of Accounts for exact wording of account titles. 4. Journalize the entries to record the receipt of the amounts due on Notes (5) and (6) in January and February. Refer to the Chart of Accounts for exact wording of account titles.

Answer 1

Explanation:

The computation of given question is shown below:-

A.

Note  Due date      Calculation                         Amount

1.         13 Feb        $33,000 × 30 ÷ 360 × 4%       $110

2.      23  Apr        $60,000 × 45 ÷ 360 × 7%       $525

3.       10 Oct          $48,000 × 90 ÷ 360 × 5%       $600

4.       6 Nov           $16,000 × 75 ÷ 360 × 6%       $200

5.       14 Jan          $36,000 × 60 ÷ 360 × 8%      $480

6.      8 Feb            $24,000 × 60 ÷ 360 × 6%       $240

B. 10 Oct

Accounts receivable Dr,             $48,600

                To Interest revenue                            $600

                 To Notes receivable                            $48,000

(Being dishonor of notes receivable is recorded)

C. 31 Dec

Interest receivable                   $452

             To Interest revenue                $452

(Being Interest accrued on notes is recorded)

Note:- Accrued interest = ($36,000 × 8% × 46 ÷ 360) + ($24,000 × 6% × 21 ÷ 360)

= $368 + $84

= $452

D.

a. 14 Jan

Cash Dr,                            $36,480

   To Interest receivable               $368

    To Interest revenue                  $112

     To Notes receivable                $36,000

(Being notes and matured honored is recorded)

b. 8 Feb

Cash Dr,                          $24,240

    To Interest receivable                $84

    To Interest revenue                    $156

     To Notes receivable                  $24,000

(Being notes and matured honored is recorded)

Note 5:- Interest revenue = Interest receivable - Interest accrued

= $480 - $368

= $112

Note 6:- Interest revenue = Interest receivable - Interest accrued

= $240 - $84

= $156