Question

On November 19, Nicholson Company receives a $25,800, 60-day, 10% note from a customer as payment on account. What adjusting entry should be made on the December 31 year-end

Answer 1

Answer:

adjusting entry should be :

Note Receivable $1,806  (debit)

Interest Income $1,806  (credit)

Explanation:

On Issuance of the note the entries recorded are :

Note Receivable $25,800 (debit)

Sales Revenue $25,800 (credit)

At year end, December 31, 42 days would have expired, thus the interest of 42 days accrues on the Note Receivable. Entries are as follows :

Note Receivable $1,806  (debit)

Interest Income $1,806  (credit)

Interest Calculation = $25,800 × 10% × 42/60

                                 = $1,806