On September 1, Taci Company lent $ 88,000 to L. Kahil on a 90-day, 4 % note.

a. Journalize for Taci Company the lending of the money on September 1.

b. Journalize the collection of the principal and interest at maturity. Specify the date. Round interest to the nearest dollar.

(a) Taci Company lent the money on September 1:

Debit Notes receivable $88,000

Credit Cash $88,000

(To recognize notes receivable)

(b) On December 1:

Debit Cash $88,880

Credit Notes receivable $88,000

Credit Interest receivable $880

(Collection of notes principal and interest at maturity)

Explanation:

Note receivable is a promissory note with a written promise made by the borrower to the lender (payee) to pay a certain, definite sum at a specified date.

Interest revenue on the notes is calculated as: Principal x Interest Rate x Time

In this case, the total interest revenue is $88,000 x 4%/12 x 3 months = $880.

Monthly interest revenue is therefore $880 / 3 months = $293.33.