Question

Sunland Co. has the following transactions related to notes receivable during the last 2 months of the year. The company does not make entries to accrue interest except at December 31.
Nov. 1 Loaned $63,600 cash to C. Bohr on a 12-month, 9% note.
Dec. 11 Sold goods to K. R. Pine, Inc., receiving a $5,400, 90-day, 8% note.
16 Received a $14,400, 180-day, 6% note to settle an open account from A. Murdock.
31 Accrued interest revenue on all notes receivable.
Journalize the transactions for Sunland Co. (Omit cost of goods sold entries.) (Credit account titles are automatically indented when amount is entered. Do not indent manually. Record journal entries in the order presented in the problem. Use 360 days for calculation.)
Date Account Titles and Explanation Debit

Answer 1

Answer:

Nov. 1 Loaned $63,600 cash to C. Bohr on a 12-month, 9% note

Debit Notes receivable $63,600

Credit Cash $63,600

(To record notes receivable)

Debit Interest receivable $954

Credit Interest revenue $954

(To record accrued interest as at Dec 31)

Dec. 11 Sold goods to K. R. Pine, Inc., receiving a $5,400, 90-day, 8% note

Debit Notes receivable $5,400

Credit Cash $5,400

(To record notes receivable)

Debit Interest receivable $23

Credit Interest revenue $23

(To record accrued interest as at Dec 31)

16 Received a $14,400, 180-day, 6% note to settle an open account from A. Murdock

Debit Notes receivable $14,400

Credit Cash $14,400

(To record notes receivable)

Debit Interest receivable  $34

Credit Interest revenue  $34

(To record accrued interest as at Dec 31)

Explanation:

Note is a promissory note with a written promise made by the borrower to the lender (payee) to pay a certain, definite sum at a specified date.

Interest expense on the notes is calculated as: Principal x Interest Rate x Time

Nov. 1: In this case, the total interest revenue is: $63,600 x 9%/12 x 12 months = $5,724.

Interest expense as at December 31 is therefore $5,724 / 12 x 2 = $954.

Dec. 11: Total interest revenue is: $5,400 x 8%/12 x 3 months = $108.

Interest expense as at December 31 is therefore $108 / 90 days x 19 days = $23.

Dec. 16: Total interest revenue is: $14,400 x 6%/12 x 6 months = $432.

Interest expense as at December 31 is therefore $432 / 180 days x 14 days = $34.