Answer:
(a) Determine the due date of the note.
The note was issued on February 3, so we have 25 days remaining in February, 31 days in March, 30 days in April and 4 days in May = 90 days total.
This means that the note is due on May 5th (the day after the 90th day)
(b) Determine the interest.
interest expense = $200,000 x 7% x 3/12 = $3,500
(c) Determine the maturity value of the note.
The maturity value of the note = principal + accrued interest = $200,000 + $3,500 = $203,500
(d) Journalize the entry to record the receipt of the note from Potts on Feb. 3.
Dr Accounts payable 200,000
Cr Notes payable 200,000
(e) Journalize the entry to record the receipt of payment of the note at maturity by Valley Co.
Dr Cash 203,500
Cr Notes receivable 200,000
Cr Interest revenue 3,500
