Question

Details of notes receivable and related entries​

Water Closet Co. wholesales bathroom fixtures. During the current year ending December 31, Water Closet received the following notes:

	Date	Face Amount	Term	Interest Rate
1.	Mar. 6	$75,000	60 days	2%
2.	Apr. 7	40,000	45 days	9%
3.	Aug. 12	36,000	120 days	5%
4.	Oct. 22	27,000	30 days	8%
5.	Nov. 19	48,000	90 days	9%
6.	Dec. 15	72,000	45 days	5%

	Required:
1.	Determine for each note (a) the due date and (b) the amount of interest due at maturity, identifying each note by number. Assume a 360-day year. (Note: Round each interest computation to the nearest cent.)
2.	Journalize the entry to record the dishonor of Note (3) on its due date. Refer to the Chart of Accounts for exact wording of account titles.
3.	Journalize the adjusting entry to record the accrued interest on Notes (5) and (6) on December 31. Refer to the Chart of Accounts for exact wording of account titles. Assume a 360-day year. (Note: Round each interest computation to the nearest cent.)
4.	Journalize the entries to record the receipt of the amounts due on Notes (5) and (6) in January and February. Refer to the Chart of Accounts for exact wording of account titles.

Answer 1

SOLUTION

1.

Note	Date	Face value	Due date	Interest due at maturity
1	March 6	75,000	March 6+60 days = 5 May	75000*.02*60/360= 250
2	April 7	40,000	April7 +45 days = 22 May	40000*.09*45/360= 450
3	Aug.12	36,000	Aug12+120 days =10 Dec	36000*.05*120/360= 600
4	Oct.22	27,000	Oct 22+ 30 days = 21 Nov	27000*.08*30/360= 180
5	Nov.19	48,000	Nov19+90 days = 17 Feb of next year	48000*.09*90/360= 1,080
6	Dec. 15	72,000	Dec 15 +45 days= 29 Jan	72000*.05*45/360= 450

Journal entries-

S.No.	Date	Accounts titles and Explanation	Debit ($)	Credit ($)
2.	10 Dec.	Accounts receivable	36,600
		Note receivable		36,000
		Interest revenue		600
		(Being note 3 dishonoured)
3.	31 Dec.	Interest receivable	664
		Interest revenue		664
		(Being interest on note 5 and 6accrued)
4.	29 Jan	Cash   [72000+450]	72,450
		Note receivable		72,000
		Interest receivable [till 31 dec]		160
		Interest revenue[450-160 due till 31dec ]		290
		(being note 6 collected)
	17 Feb.	Cash [48000+1,080]	49,080
		Note receivable		48,000
		Interest receivable		504
		Interest revenue [1,080-504]		576
		(Being note 5collected)

**3)Interest accrued on note 5 till dec31 =48000*.09*42/360=504

Interest accrued on note 6 till dec 31 =72000*.05*16/360 =160

Total :664