Question

On November 1, Coleman Company received Davis Company's $9,600, 90-day, 6% note receivable in settlement of a past due account.

At the end of the fiscal year, on December 31, Coleman Company accrued interest on the note.

Required:

Prepare the journal entries for Coleman Company on November 1 and December 31.

Note: To simplify the arithmetic in the problem, use 360 days for the number of days in a year.

Answer 1

Journal Entry
Date	General Journal	Debit	Credit
1-Nov	Notes Receivable	$ 9,600.00
	Accounts Receivable		$ 9,600.00
	(Notes receivable received for past dues)
31-Dec	Interest Receivable	$      146.40
	Interest Revenue		$     146.40
	(Interest on note receivable)

Working notes

Number of days passed till December 31

Number of days in November	30
Number of days in December	31
Number of Days to accrue Interest Income	61

Calculations
Value of Note	$ 9,600.00
Interest for a year (9600x9%)	$      864.00
Interest for 90 days ($ 864/360*90)	$      216.00
Interest earned till 31st December for 61 days ($ 216/90*61)	$      146.40
Unearned Interest Revenue ($ 216/90*29)	$        69.60

Interest will be accrued for only 61 days. Value of notes receivable will be recorded as $9600.