Question

Flush Mate Co. wholesales bathroom fixtures. During the current fiscal year, Flush Mate Co. received the following notes:

	Date	Face Amount	Interest Rate	Term
1.	Mar. 6	$78,000	4%	45 days
2.	Apr. 23	24,500	9	60 days
3.	July 20	45,900	5	120 days
4.	Sept. 6	58,700	6	90 days
5.	Nov. 29	27,400	7	60 days
6.	Dec. 30	67,500	6	30 days

	Required:
4.	Journalize the entries to record the receipt of the amounts due on Notes (5) and (6) in January. Refer to the Chart of Accounts for exact wording of account titles. Assume a 360-day year when calculating interest. Round your answer to the nearest whole dollar.

Answer 1

Note 5

On January 1 some amount of interest is recorded as accrued. This interest was receivable in previous year. As accounting is based on accrual concept we calculate the interest revenue accrued for previous year till December 31. This amount is due on January 1.

31+1 = 32 days interest

Total days in year = 360

Rate of interest = 7% p.a.

principal amount = 27400

interest accrued = 27400 * 7% * 32/360 which is 170.49 approx

Date	Particular	Debit	Credit
1 January	Accrued Interest	170.49
	To Interest Revenue		170.49
	(Being interest revenue receivable on Note 5)

Note 6

day = 31 - 30 which is 1

number of days = 360

Interest rate = 6% p.a

principal payment = 67500

Interest accrued = 67500 * 6% * 1/360 which is 11.25

Date	Particular	Debit	Credit
1 January	Accrued Interest	11.25
	To Interest Revenue		11.25
	(Being interest revenue receivable on Note 6)

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