Question

The following are transactions related to notes receivable. In all cases, interest is due at maturity unless indicated otherwise.

Jan 1    Loaned $5,000 to the company’s general manager, who signed a 6-month, 10% note due June 30.

Feb 1   A customer who owed $6,500 settled his account by signing a 3-month, 5% note.

Mar 31 Recorded accrued interest on all notes in preparation for issue of quarterly financial statements.

Apr 30 The customer referred to above defaulted on the note. It is unlikely that he will be able to pay the account.

Jun 30 The general manager paid her note in full.

Instructions: Record all of the transactions described.

Answer 1

Solution:

Journal Entries
Date	Particulars	Debit	Credit
1-Jan	Note receivables Dr	$5,000.00
	To Cash		$5,000.00
	(Being loan given to GM)
1-Feb	Note receivables Dr	$6,500.00
	To Accounts receivables		$6,500.00
	(To record receipt of note from customer)
31-Mar	Interest receivables Dr [(5000*10%*3/12) + ($6,500*5%*2/12)]	$179.00
	To Interest revenue		$179.00
	(To record interest accrued)
30-Apr	Bad debts expense Dr	$6,554.00
	To Note receivables		$6,500.00
	To Interest receivables		$54.00
	(To record dishonor of note)
30-Jun	Cash Dr	$5,250.00
	To Note receivables		$5,000.00
	To Interest receivables		$125.00
	To Interest revenue		$125.00
	(To record receipt of note at maturity)