Question

P9-31A Accounting for notes receivable and accruing interest

Kelly Realty loaned money and received the following notes during 2014.

Note Date Principal Amount Interest Rate Term

(1) Aug.1 $ 24,000 17% 1 year

(2) Nov. 30 18,000 6% 6 months

(3) Dec. 19 12,000 12% 30 days

Requirements

1. Determine the maturity date and maturity value of each note.

2. Journalize the entry to record the inception of each of the three notes and also

journalize a single adjusting entry at December 31, 2014, the fiscal year-end, to

record accrued interest revenue on all three notes. Explanations are not required.

3. Journalize the collection of principal and interest at maturity of all three notes.

Explanations are not required.

Answer 1

SOLUTION

1.

	Principal ($)(A)	Interest rate (B)	Interest period (C)	Interest revenue earned ($) (D=A*B*C)	Maturity Value ($) (A+D)	Maturity Date
Note 1	24,000	17%	12/12	4,080	28,080	Aug. 1, 2015
Note 2	18,000	6%	6/12	540	18,540	May 30, 2015
Note 3	12,000	12%	60/360	120	12,120	Jan. 18, 2015

2.

Date	Accounts and Explanation	Debit ($)	Credit ($)
Aug.1	Notes Receivable (Note 1)	24,000
	Cash		24,000
Nov. 30	Notes Receivable (Note 2)	18,000
	Cash		18,000
Dec. 19	Notes Receivable (Note 3)	12,000
	Cash		12,000
Dec. 31	Interest Receivable	1,838
	Interest Revenue		1,838

Calculation of interest-

	Principal ($) (A)	Interest Rate (B)	Interest Period (C)	Interest revenue earned (A*B*C) ($)
Note 1	24,000	17%	5/12	1,700
Note 2	18,000	6%	1/12	90
Note 3	12,000	12%	12/360	48
Total				1,838

3.

Date	Accounts and Explanation	Debit ($)	Credit ($)
Jan.18 2015	Cash($12,000 + $48 + $72)	12,120
	Interest Receivable		48
	Interest Revenue ($12,000*12%*18/360)		72
	Notes Receivable(Note 3)		12,000
May.30 2015	Cash($18,000 + $90 + $450)	18,540
	Interest Receivable		90
	Interest Revenue ($18,000 * 6% * 5/12)		450
	Notes Receivable(Note 2)		18,000
Aug.1,2015	Cash($24,000 + $1,700 + $2,380)	28,080
	Interest Receivable		1,700
	Interest Revenue ($24,000*17%*7/12)		2,380
	Notes Receivable(Note 1)		24,000