Question

On March 1, Terrell & Associates provides legal services to Whole Grain Bakery regarding some recent food poisoning complaints. Legal services total $10,700. In payment for the services, Whole Grain Bakery signs a 10% note requiring the payment of the face amount and interest to Terrell & Associates on September 1.
Required:For Terrell & Associates, record the acceptance of the note receivable on March 1 and the cash collection on September 1. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)

Answer 1

Answer:

note receivables 10,700 debit

       fees earned          10,700 credit

--to recortd acceptance of promissory note forlegal services--

cash                   11,235 debit

     interest revenue           535 credit

    note receivable         10,700 credit

--to record collection of the note--

Explanation:

acceptance: we will declare the revenue and create the note receivable

then, on September 1st we calculate the interest and recognize the revenue for them:

principal x rate x time = interest

10,700 x 10% x 6 month = 10,700 x 0.1 x 0.5 = 535 dollars

We will recieve in cash principal plus interest

and write-off the receivables.