Question

A customer settled an overdue account in the amount of $800 on January 16. The customer signed a 30-day promissory note for $700 bearing 12% and gave $100 in cash to the lender. The lender properly accrues interest at the end of January. The promissory note was honored on the date of maturity. Prepare the journal entries needed with the correct dates.

Answer 1

The journal entries for the given transaction are:January 16: Cash $100Accounts receivable $700Interest receivable $100January 31: Interest receivable $8Interest revenue $8February 15: Cash $708Interest receivable $8Interest revenue $4Accounts receivable $700The reason is,Given data:Amount settled by customer = $800Amount of promissory note = $700Cash given = $100Rate of interest = 12%Date of the transaction = January 16Since the customer settled an overdue account in the amount of $800 on January 16 and the customer signed a 30-day promissory note for $700 bearing 12% and gave $100 in cash to the lender, the journal entry for the transaction will be:Cash $100Accounts receivable $700As of January 31, the interest will be accrued properly by the lender, which will be:Interest receivable $8Interest revenue $8Therefore, the journal entry for February 15 will be:Cash $708Interest receivable $8Interest revenue $4Accounts receivable $700