Jan 21 A customer who owed $10,000 on an account receivable, agreed to sign a 60-day...

Jan 21 A customer who owed $10,000 on an account receivable, agreed to sign a 60-day note receivable with an interest rate of 6.0%. The interest earned on the note will be paid at the maturity date of the note receivable.

Jan. 21

Notes Receivable……………...........

Accounts Receivable ....………

$10,000

Feb 10 Sanford Company sold the note receivable from Jan 21st to the bank, which discounted the note at 8.0%.

Required:

What is the correct journal entry for February 10th and why?

Solutions

Expert Solution

Due date for note receivable is March 22 = Jan 21 + 60 days

Number of days to be considered while calculating discount = Feb 10 to March 22 = 40 days = 1.33 months

Discount calculated by bank for the period left to lapse till due date = 0.08*10100*1.33/12 = $90

Workings for the journal entry are as under:-

Item	Amount in $	Calculation detail

Face value	10000
Interest	100	*100006%2/12*
maturity value	10100	Face value + Interest

Discount calculated	90	*0.08101001.33/12*
Proceeds from note	10010	Maturity value less discount
Net interest income	10	Proceeds from note minus face value

Journal entry to be done on Feb 10:-

Item	Debit	Credit
Cash A/c	10010
Notes receivable		10000
Interest income		10

ekkarill92 answered 7 months ago

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