Question

N March 1, Terrell & Associates provides legal services to Whole Grain Bakery regarding some recent food poisoning complaints.
Legal services total $10,400. In payment for the services, Whole Grain Bakery signs a 9% 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:

Explanation:

The journal entries are shown below:

On March 1

Notes receivable A/c Dr $10,400

     To Service revenue A/c $10,400

(Being the acceptance of the note is recorded)

On September 1

Cash A/c Dr $10,868

   To Notes receivable A/c $10,400

   To Interest revenue A/c $468

(Being the cash collection is recorded)

The computation of the interest revenue is shown below:

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

= $10,400 × 9% × (6 months ÷ 12 months)

= $468