Question

On March 14, Teal Co. accepted a 120dau, 6% note in the amount of $10,000 from AZC Co., a customer. On the due date of the note, AZC honors the note and pays in full. The journal entry that Teal would make to record payment of this note would include a credit to:a) Note receivable for 10,200b) Cash for 10,000c) Interest revenue for 200d) Interest receivable for 200

Answer 1

Answer:

The journal entry that Teal would make to record payment of this note would include a credit to: c) Interest revenue for $200

Explanation:

On March 14, Teal Co. accepted a 120 days, 6% note in the amount of $10,000 from AZC Co.

The entry:

Debit Note receivable $10,000

Credit Accounts receivable $10,000

Assuming that a year of calculating interest has 360 days. On the due date of the note, AZC honors the note and pays in full, include the interest of 120 days:

$10,000 x 6% x 120/360 = $200

The entry that Teal would make:

Debit Cash $10,200

Credit Note receivable $10,000

Credit Interest revenue $200