Question

RecRoom Equipment Company received an $8,000, six-month, 6 percent note to settle an $8,000 unpaid balance owed by a customer.

Answer 1

Answer:

Explanation:

The journal entries are shown below:

a. Notes receivable A/c Dr $8,000

     To Accounts receivable $8,000

(Being receipt of note is recorded)

b. Interest receivable A/c Dr $80

           To Interest revenue A/c $80

(Being accrued interest is recorded)

The computation of accrued interest is shown below:

= Principal × rate of interest × number of months ÷ (total number of months in a year)  

= $8,000 × 6% × (2 months ÷ 12 months)

= $80

The 2 months is calculated from November 30 to December 31

c. Cash A/c Dr $240

      To Interest receivable $80

      To Interest revenue $160

(Being cash received in respect of interest accrual is recorded)

The computation of accrued interest is shown below:

= Principal × rate of interest × number of months ÷ (total number of months in a year)  

= $8,000 × 6% × (4 months ÷ 12 months)

= $160

The 4 months is calculated from November 30 to April 30

d. Cash A/c Dr $10,200

         To Notes receivable A/c $10,200

(Being the receipt of the payment is recorded)