Question

Interlocking Devices, a supplier of zippers for clothing, is owned and operated by Jay Dewitt. The following selected transactions were completed by Interlocking Devices:

20Y7
December 7. Received from Unitarian Clothing & Bags Co., on account, a $75,000, 60-day, 3% note dated
December 7.
December 31. Recorded an adjusting entry for accrued interest on the note of December 7.
December 31. Recorded the closing entry for interest revenue.

20Y8
February 5. Received payment of note and interest from Unitarian Clothing & Bags Co. Journalize the entries to record the transactions. If an amount box does not require an entry, leave it blank. Assume 360 days in a year.

Answer 1

To properly record the selected transactions for Interlocking Devices related to the receipt and payment of a note, journal entries are made to document the receipt of the note, recognition of accrued interest, and payment of the note with interest.

Step-by-step explanation:

To journalize the transactions for Interlocking Devices, we follow the standard accounting procedures for recording notes receivable and interest revenue. The transactions present a business deal involving a note receivable that accrues interest over a 60-day period.

1. December 7, 20Y7: Debit Notes Receivable $75,000; Credit Accounts Receivable $75,000. This entry records the receipt of a 60-day, 3% note from Unitarian Clothing & Bags Co.
2. December 31, 20Y7: Debit Interest Receivable; Credit Interest Revenue. To calculate the interest for 24 days (Dec 7 to Dec 31), use the formula Interest = Principal × Rate × Time = $75,000 × 3% × (24/360). You'll need to plug in the values and calculate the actual interest amount.
3. December 31, 20Y7: Record the closing entry for interest revenue, which means debiting Interest Revenue and crediting Income Summary.
4. February 5, 20Y8: Debit Cash for the total amount of the note plus interest for 60 days, and credit Notes Receivable for the note's principal amount and Interest Revenue for the interest earned from December 31 to February 5.

Note that actual amount calculations for interest are not provided here, as you would need to compute these using the formula provided.