Question

On October 1, 2013, a company sold some merchandise to a customer for $60,000. In payment, company agreed to accept an 6% note requiring the receipt of interest and principal on June 30, 2014. Assume all correct adjusting entries were made at year end December. 31, 2013. The journal entry on the collection date, June 30, 2014 would include a:

Answer 1

Answer:

Debit Cash for $62,700; Credit Note receivable for $60,000; and Credit Interest income for $2,700.

Explanation:

The following are first determined:

Note receivable = $60,000

Interest income = Note receivable * Interest rate * (Number of months for October 1, 2013 to December. 31, 2013 / Number of months in a year) = $60,000 * 6% * (9 / 12) = $2,700

Cash = Note receivable + Interest income = $60,000 + $2,700 = $62,700

Therefore, the journal entry on the collection date, June 30, 2014 would look as follows:

Date              Particulars                    Debit ($)         Credit ($)              

30 Jun '14     Cash                               62,700

                     Note receivable                                     60,000

                     Interest income                                        2,700

                     (To record receipt of interest and principal on note.)