Question

Included in Culver Company’s December 31 trial balance is a note receivable of $8,880. The note is a 4-month, 10% note dated October 1. Prepare Culver’s December 31 adjusting entry to record $222 of accrued interest, and the February 1 journal entry to record receipt of $9,176 from the borrower.

Answer 1

Answer:

interest receivable   222 debit

    interest revenue         222 credit

Cash                9,176 debit

interest revenue          74 credit

interest receivable    222 credit

note receivable      8,880 credit

Explanation:

At year-end we recognize the accrued interest revenue: this comes from the formula:

principal x rate x time

8,880 x 10% x 3/12 = 222

Then, the borrower honor his debt. We post the cash collection

the revenue for the remaining month:

8,880 x 10% x 1/12 = 74

and write-off the receivables.