Question

On October 1, Light Corp sold goods on account to Dark Corp. Light agreed to accept a $100,000 8% 6-month interest-bearing note from Dark in payment for the goods. Light has a December 31 year-end. The entry required on Light's books on April 1 when the note is due requires a ____________.

Answer 1

Light Corp would record a debit to Notes Receivable for $100,000, a debit to Interest Receivable for $4,000, and a credit to Cash for $104,000, the total amount due including principal and accrued interest.

Step-by-step explanation:

The entry required on Light Corp's books on April 1 when the note from Dark Corp is due involves receiving both the principal amount and the accrued interest on the $100,000 8% 6-month interest-bearing note. By April 1, six months of interest on the note would be $4,000 (100,000 x 8% x 6/12).

The journal entry Light Corp would make on April 1 would therefore be a debit to Notes Receivable for the principal amount of $100,000, a debit to Interest Receivable or Interest Income for the accrued interest of $4,000, and a credit to Cash for the total amount due, which is $104,000 (the sum of the principal and interest).