Question

Uniform Supply accepted a $10,200, 90-day, 8% note from Tracy Janitorial on October 17. What entry should Uniform Supply make on January 15 of the next year when the note is paid? (Assume reversing entries are not made.). (Use 360 days a year.)

Answer 1

Answer:

cash                       10,404  debit

interest revenue                         34 credit

interest receivable                    170 credit

note receivable                   10,200 credit

Explanation:

The note for the time period of October 17 to December 31th has accrued interest

those interest will be recognize on that same accounting period.

Then, at the moment of honor the note Uniform will recognize the interest from ja 1st to jan 15th

The total cash proceeds will be the principal and 90 days interest at 8%

The principal will be 10,200

Let's dive into the interest:

Interest = principal x rate x time

Where rate and time should be expressed on the same metric.

10,200 x 8% x (90 days/360 days a year)=

10,200 x 8% x 1/4 = 204

Those interest  are recognize in accounting in two parts:

from jan 1 to jan 15

10,200 x 8% x (15 days/360 days a year)= 34

from october 17 to december 31th

10,200 x 8% x (75 days/360 days a year)= 170

On the journal entry, Uniform will do:

Write-off the note receivable and the interest receivable

It will declare the interest revenue for the period jan 1st to Jan 15th

It will post the total cash received from Tracy Janitorial