Question

on september 1, year 1, health wise international acquired a 6 percent, 9-month note receivable from herbal innovations, a credit customer, in settlement of a $22,000 account receivable. prepare journal entries to record the following. a. the receipt of the note on september 1, year 1, in settlement of the account receivable. b. the adjustment to record accrued interest revenue on december 31, year 1. c. the collection of the principal and interest on may 31, year 2.

Answer 1

The student is provided with journal entries to record the receipt of a note receivable, the accrual of interest by year-end, and the collection of the note along with interest the following year.

Step-by-step explanation:

Journal Entries for Note Receivable Transactions

The student is asking for the journal entries to record 1) the receipt of a note receivable, 2) the year-end interest accrual, and 3) the collection of both principal and interest for a business transaction.

a. On September 1, Year 1, when Health Wise International receives the note in settlement of the account, the journal entry would be:

Notes Receivable

- Debit $22,000

Accounts Receivable

- Credit $22,000

b. On December 31, Year 1, to record the accrued interest revenue, the entry is:

Interest Receivable

- Debit $330

Interest Revenue

- Credit $330

(Interest calculated: $22,000 * 6% * (4/12) = $330)

c. On May 31, Year 2, when the principal and interest are collected, the entry is:

Cash

- Debit $22,440

Notes Receivable

- Credit $22,000

Interest Receivable

- Credit $330

Interest Revenue

- Credit $110

(Extra interest calculated: $22,000 * 6% * (5/12) = $550; minus the $330 already recognized in December, leaving $220; this $220 is split between two months for the period January 1 to May 31, Year 2)