Use the following information for questions 24-25. o receives a promissory note

Question

Use the following information for questions 24-25. o receives a promissory note from a customer. The note has a term of 60 days, an annual interest rate of 12%, and is for $10,000. 24) The company accrues interest revenue on December 31 for the current year. What amount of interest should they accrue for this notes receivable? a. $0 b. $100 c. $200 d. $1,200 25) The company receives payment for the note in full on the due date. The journal entry would include all of the following except (the company accrued interest on December 31): a. b. c. d. Debit cash - $10,200 Credit - Interest Revenue $200 Credit - Interest Receivable $100 Credit - Notes Receivable $10,000

Explanation / Answer

24) The term of note is 60 days and the note is received on December 1, the interest accrue on December 31 is the interest for 30 days at the rate of 12% on principal amount of $10,000 (Assume 360 days in a year)

Interest accrue for current year = $10,000*12%*(30 days/360 days)

= $100

25) When the company will receive the payment for note the journal entry will be as follows:-

Cash $10,200

Interest Revenue $100 (For the month of january)

Interest Receivable $100

Note Receivable $10,000

Thus journal entry will include all the accounts mentioned in options a,c and d except b) Credit-Interest Revenue $200 because interest revenue will be credited with $100 not $200.

Therefore the correct option is b) Credit-Interest Revenue $200.

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