Question

Exercise 240 These transaction took place for Sanders Co. 2016 May 1 Received a $15,000, 1-year, 9% note in exchange for an outstanding account receivable from T. Foley. Dec.31 Accrued interest revenue on the T. Foley note. 2017 May 1 Received principal plus interest on the T. Foley note. (No interest has been accrued since December 31, 2016.)Record the transaction in general journal.

Answer 1

Debit Credit

1) Note Receivable 15000

Account Receivable 15000

2) Accrued Interest 900

Interest Revenue 900

3) Cash 1200

Accrued Interest 900

Interest Revenue 300

4) Cash 15000

Note Receivable 15000

Step-by-step explanation:

Dec 31 Accrued interest will be calculated by dividing the total interest payment of the year by 12 and multiplying it by 8 as May 1 -Dec 31 is 8 months

So 0.09 *15000/8/12=900

May 2017 Interest payment recorded by calculating the total interest payment (15000*0.09)=1200 (cash debited)

And Accrued interest from previous year and this years interest revenue (4/12*1200) will be credit

15000 note receivable credited and 15000 cash debited for the principal repayment.