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12 September, 07:27

Uniform Supply accepted a $10,200, 90-day, 8% note from Tracy Janitorial on October 17. What entry should Uniform Supply make on January 15 of the next year when the note is paid? (Assume reversing entries are not made.). (Use 360 days a year.)

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  1. 12 September, 09:28
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    cash 10,404 debit

    interest revenue 34 credit

    interest receivable 170 credit

    note receivable 10,200 credit

    Explanation:

    The note for the time period of October 17 to December 31th has accrued interest

    those interest will be recognize on that same accounting period.

    Then, at the moment of honor the note Uniform will recognize the interest from ja 1st to jan 15th

    The total cash proceeds will be the principal and 90 days interest at 8%

    The principal will be 10,200

    Let's dive into the interest:

    Interest = principal x rate x time

    Where rate and time should be expressed on the same metric.

    10,200 x 8% x (90 days/360 days a year) =

    10,200 x 8% x 1/4 = 204

    Those interest are recognize in accounting in two parts:

    from jan 1 to jan 15

    10,200 x 8% x (15 days/360 days a year) = 34

    from october 17 to december 31th

    10,200 x 8% x (75 days/360 days a year) = 170

    On the journal entry, Uniform will do:

    Write-off the note receivable and the interest receivable

    It will declare the interest revenue for the period jan 1st to Jan 15th

    It will post the total cash received from Tracy Janitorial
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