Question

James Supply Co. has the following transactions related to notes receivable during the last 2 months of 2013. Nov. 1 Loaned $20,000 cash to Mary Perkins on a 1-year, 12% note. Dec. 11 Sold goods to Eminem, Inc., receiving a $9,000, 90-day, 8% note. The goods cost $6,500. Dec. 16 Received a $8,000, 6-month, 9% note in exchange for Mick Jagger’s outstanding accounts receivable. Dec. 31 Accrued interest revenue on all notes receivable.(assume 360 days per year) Instructions (a) Journalize the transactions for James Supply Co. (b) Record the collection of the Perkins note at its maturity on November 1, 2014.

Answer 1

James Supply Co

1. Journalize the transactions:

Date	Account Titles and Explanation	Ref. No.	Debit	Credit
1-Nov-13	Notes Receivable		$20,000
	Cash			$20,000
	(To record loan to Mary Perkins)
11-Dec-13	Notes Receivable		$9,000
	Sales			$9,000
	(To record 8% note received for sales)
11-Dec-13	Cost of goods sold		$6,500
	Inventory			$6,500
	(To record cost of goods sold)
16-Dec-13	Notes Receivable		$8,000
	Accounts Receivable			$8,000
	(Note received in exchange of accounts receivable)
31-Dec-13	Interest Receivable		$470
	Interest Revenue			$470
	(to record accrued interest on notes receivables)

Computation of accrued interest on notes –

1. Note made on Nov 1 (2 months)

Accrued Interest = $20,000 x 12% x 2/12 = $400

1. Note made on Dec 11 (interest accrued for 20 days)

Accrued interest = $9,000 x 8% x 20 days/360 days = $40

1. Note made on Dec 16 (interest accrued for 15 days)

Accrued interest = $8,000 x 9% x 15/360 = $30

Total accrued interest = $400 + $40 + $30 = $470

1. Record collection of Perkins note –

Date	Account Titles and Explanation	Ref. No.	Debit	Credit
1-Nov-14	Cash		$22,400
	Notes Receivable			$20,000
	Interest Receivable			$400
	Interest Revenue			$2,000
	(To record collection of Perkins note at maturity)

Computation of interest revenue –

Interest revenue = 20,000 x 12% x 10/12 = $2,000