Elburn Supply Co. has the following transactions related to notes receivable dur

Question

Elburn Supply Co. has the following transactions related to notes receivable during the last 2 months of 2017. The company does not make entries to accrue interest except at December 31.

Nov. 1 Loaned $14,400 cash to Manny Lopez on a 12-month, 10% note.

Dec. 11 Sold goods to Ralph Kremer, Inc., receiving a $31,500, 90-day, 8% note.

16 Received a $30,720, 180 day, 10% note in exchange for Joe Fernetti’s outstanding accounts receivable.

31 Accrued interest revenue on all notes receivable.

A) Journalize the transactions for Elburn Supply Co. B) Record the collection of the Lopez note at its maturity in 2018.

Explanation / Answer

A.

The given transactions will be journalized as follows:

Working note:

Accrued interest on December 31

= (14,400 x 10% x 2/12) + (31,500 x 8% x 20/360) + (30,720 x 10% x 15/360)

= 240 + 140 + 128

= 508

B.

Collection of the note at its maturity will be recorded as follows:

Date Account Titles and Explanation Debit Credit Nov. 1 Notes Receivable 14400       Cash 14400 Dec. 11 Notes Receivable 31500       Sales 31500 Dec. 16 Notes Receivable 30720       Accounts Receivable 30720 Dec. 31 Interest Receivable 508       Interest Revenue 508

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