Question

On 1 September 2019, Mike Co. signed a 12% six-month note receivable in settlement of accounts receivable of €320,000. The note and interest are all due at maturity.

1. Prepare the entry on 1 September 2019 made by Mike Co. to record the receipt of this note receivable. (5 points)
2. Prepare the 31 December 2018 (fiscal year-end), adjusting entry made by Mike Co. with regard to this note receivable. (5 points)
3. Prepare the entry made by Mike Co. on 1 March 2020 (maturity date of note), to record collection of note and interest. (5 points)
4. Assume that on 1 March 2020, the maker of the note defaults and Mike Co. does not collect the note and interest. Explain what Mike Co. would do in accounting records in this situation. (5 points)

	General Journal
Date	Account Titles and Explanation	Debit	Credit
(a)
(b)
(c)

Answer 1

	Journal
SI.No	Date	Account Titles and Explanation	Debit	Credit
a	1-Sep-19	12% Note Receivable	Dr	320,000
		To	Accounts Receivable		320,000
b	31-12-19	12% Note Receivable	Dr	12,800
		To	Interest Income			12,800
c	01-03-20	12% Note Receivable	Dr	6,400
		To	Interest Income			6,400
		Cash			339,200
		To	12% Note Receivable		339,200
	If the maker of the note defaults
d	01-03-20	Accounts Receivable		339,200
		To	12% Note Receivable		339,200