Question

Elburn Supply Co. has the following transactions related to notes receivable during the last 2 months of 2017. The company does not make entries to accrue interest except at December 31. Nov. 1 Loaned $18,600 cash to Manny Lopez on a 12-month, 10% note. Dec. 11 Sold goods to Ralph Kremer, Inc., receiving a $47,250, 90-day, 8% note. Dec. 16 Received a $58,200, 180 day, 8% note in exchange for Joe Fernetti’s outstanding accounts receivable. Dec. 31 Accrued interest revenue on all notes receivable.A. Journalize the transactions for Elburn Supply Co. (Use 360 days for calculation. Record journal entries in the order presented in the problem.)B. Record the collection of the Lopez note at its maturity in 2018.

Answer 1

Answer:

November 1

Loaned $18,600 cash to Manny Lopez on a 12-month, 10% note.  

• Dr Notes receivable 18,600
• Cr Cash 18,600

December 11

Sold goods to Ralph Kremer, Inc., receiving a $47,250, 90-day, 8% note.  

• Dr Notes receivable 47,250
• Cr Sales revenue 47,250

December 16

Received a $58,200, 180 day, 9% note in exchange for Joe Fernetti’s outstanding accounts receivable.

• Dr Notes receivable 58,200
• Cr Accounts receivable 58,200

December 31

Accrued interest revenue on all notes receivable.

• Dr Interest receivable 728.25
• Cr Interest revenue 728.25

How to calculate interest:

Lopez:  $18,600 x 10% x 2/12 = $300

Kremer: $47,250 x 8% x 20/360 = $210 (using a 360-day year; 20 days)

Fernetti: $58,200 x 9% x 15/360 = $218.25 (using a 360-day year; 15 days)

Total $728.25