Question

On January 1, Franz Co. accepted a 30-day, 6% note in the amount of $5,000 from Bria Co., a customer. On January 31, the due date of the note, Bria honors the note and pays in full. The journal entry that Franz would make to record payment of this note would include a:
A) debit to Cash for $5,025.
B) credit to Note Receivable for $5,000.
C) credit to Interest Revenue for $25.

Answer 1

Answer:

The answer is:

Dr Cash $5,025

Cr: Receivable $5,000

Cr: Interest Revenue $25

Explanation:

The year is 360 days.

Annual rate is 6%

Therefore, interest rare for the 30-day is 1.5%[(90/360) x 6%]

So, the interest on the rate is:

0.5% x $5,000

$25.

The total amount collected from Bria will be principal + interest

$5,000 + $25 = $5,025

According to the accounting rule, debit increases asset and expenses and vice-versa while credit decreases liability, equity, income and vice versa.

So we have:

Dr Cash $5,025

Cr: Receivable $5,000

Cr: Interest Revenue $25