Question

On March 1, Company A provides legal services to Company B regarding some recent food poisoning complaints. Legal services total $10,400. In payment for the services, Company B signs a 9% note requiring the payment of the face amount and interest to Company A on September 1.

Required:

For Company A, record the acceptance of the note receivable on March 1 and the cash collection on September 1. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)
  

Answer 1

Company A has made sales by providing legal services.

When services are provided the Company will make journal entry as -

Sundry Debtors.... Debit

To Sales/Revenue

The amount will be for $ 10,400 and and this entry will be made on 1st March.

When Company receives Note against this -

Notes Receivable.. Debit

To Sundry Debtors

The company will nullify the sundry debtors for the respective amount of $ 10,400 and debit Notes Receivable.

Alternatively, when sales are made on 1st March the Company cane make journal entry as -

Notes Receivable... Debit

To Sales/Revenue

This entry will be for $ 10,400.

On September 1 -

Amount received will be = Principal + Interest

Interest = 10,400 * 9% * 6/12 = $ 468

Interest fir six months from March to September

Total amount received = 10,400 + 468 = $ 10,868

Journal entry will be -

Bank... Debit............. $ 10,868

To Notes Receivable............ $ 10,400

To Interest Income............... $ 468

Interest is from March to September. Calender year being followed while interest income will be for same year.

If financial year from March to April is followed, interest for March will be accounted separately.

This way journal entry will be recorded by Company A.