Question

Blossom Company has the following transactions related to notes receivable during the last 2 months of 2019. The company does not make entries to accrue interest except at December 31.
Nov. 1 Loaned $66,000 cash to C. Bohr on a 12-month, 5% note.
Dec. 11 Sold goods to K. R. Pine, Inc., receiving a $5,400, 90-day, 7% note.
Dec. 16 Received a $7,200, 180-day, 9% note to settle an open account from A. Murdock.
Dec. 31 Accrued interest revenue on all notes receivable.

Required:
Journalize the transactions for Blossom Company.

Answer 1

Answer:

Nov 1    Notes Receivable-C Bohr      66000 Dr

                        Cash                                66000 Cr

Dec 11   Notes Receivable-KR Pine      5400 Dr

                        Sales Revenue                 5400 Cr

Dec 16  Notes Receivable-A Murdock 7200 Dr

                        Accounts Receivable       7200 Cr

Dec 31  Interest receivable                   598 Dr

                        Interest Revenue                598 Cr

Explanation:

We need to calculate the interest accrued on all the notes. We will then add the interests on these notes and credit interest revenue by that amount and debit interest receivable.

Interest revenue on Note 1

Interest Revenue = 66000 * 0.05 * 2/12 = $550

Interest revenue on Note 2

Number of days interest is accrued for is 20 days (31-11=20)

Assuming a 360 day year.

Interest revenue = 5400 * 0.07 * 20/360 = $21

Interest revenue on Note 3

No of days interest is accrued for is 15 (31-16 = 15)

Assuming a 360 day year.

Interest revenue = 7200 * 0.09 * 15/360 = $27

Total Interest revenue = 550 + 21 + 27 = $598