Question

On August 2, Jun Co. receives a $7,000, 90-day, 11.5% note from customer Ryan Albany as payment on his $7,000 account. Prepare Jun's journal entry assuming the note is honored by the customer on October 31 of that same year.

Answer 1

Answer:

Journal entry to record receipt of notes receivable on August 2

Date             Description                        Debit      Credit

August 2    Notes Receivable                $7,000

                       Account Receivables                     $7,000    

Journal entry to record note receivables honored by the customer

Date             Description                        Debit          Credit

October 31   Cash                                   $7,198.49

                        Notes Receivables                           $7,000

                        Interest Receivables                        $198.49

Workings

Interest = Principal amount * Periodic interest rate

Interest = $7,000 * 11.5% * 90/365

Interest = $198.49

Hence, the interest on note receivables is $198.49