Question

Following are selected transactions for Vitalo Company.

Nov. 1 Accepted a $3,000, 180-day, 7% note dated November 1 from Kelly White in granting a time extension on her past-due account receivable.
Dec. 31 Adjusted the year-end accounts for the accrued interest earned on the White note.
Apr. 30 White honored her note when presented for payment; February has 28 days for the current year.

Required:
Complete the table to calculate the interest amounts at December 31st and April 30th and use those calculated values to prepare your journal entries.

Answer 1

Answer:

Vitalo Company

Journal Entries

Nov. 1       Notes Receivable         $ 3000 Dr.

                Accounts Receivable          $ 3000 Cr.

Accepted a $3,000, 180-day, 7% note dated November 1 from Kelly White in granting a time extension on her past-due account receivable.

Dec. 31   Interest Receivable   $ 35   Dr.

                   Interest Income           $ 35 Cr.

( $ 3000* 7% * 180/360= $ 3000*7%* 0.5= $ 105)At Dec this amount would be

($ 105 / 6) *2= $35

Adjusted the year-end accounts for the accrued interest earned on the White note.

Apr. 30            Cash             $ 3105  

                            Notes Receivable       $ 3000

                             Interest Receivable    $ 105

White honored her note when presented for payment; February has 28 days for the current year.