Selkirk Company obtained a $30,000 note receivable from a customer on January 1, 2018. The note,...

Selkirk Company obtained a $30,000 note receivable from a customer on January 1, 2018. The note, along with interest at 12%, is due on July 1, 2018. On February 28, 2018, Selkirk discounted the note at Unionville Bank. The bank’s discount rate is 14%.

Required:
Prepare the journal entries required on February 28, 2018, to accrue interest and to record the discounting for Selkirk. Assume that the discounting is accounted for as a sale. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Expert Solution

Solution:

Interest accrued on 28.02.2018 = $30,000*12%*2/12 = $600

Face value of note = $30,000

Interest to maturity = $30,000 * 12% * 6/12 = $1,800

Maturity value = $30,000 + $1,800 = $31,800

Discount rate of bank = 14%

Discount amount = $31,800 *14% * 4/12 = $1,484

Cash proceed = $31,800 - $1,484 = $30,316

Journal Entries - Sellkirk Company
Date	Particulars	Debit	Credit
28-Feb-18	Interest receivables Dr	$600.00
	To Interest Revenue		$600.00
	(To record accrued interest on note)

28-Feb-18	Cash Dr	$30,316.00
	Loss on sale of note receivables Dr	$284.00
	To Notes receivables		$30,000.00
	To Interest receivables		$600.00
	(To record note discounted from bank)

ekkarill92 answered 2 years ago

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