Question

Kelsey's Kleening provides cleaning services for Clinton Inc., a business with four buildings. Kelsey's assigned different cleaning charges for each building based on the amount of square feet to be cleaned. The charges for the four buildings are $35,000, $27,000, $45,000, and $10,000. Clinton secured this amount by signing a note bearing 7% interest on March 1, 2019.

Required:
a. Prepare the journal entry to record the sale on March 1, 2019.
b. Determine how much interest Kelsey will receive if the note is repaid on December 1, 2019.
c. Prepare Kelsey's journal entry to record the cash received to pay off the note and interest on December 1, 2019.

Answer 1

A. Dr Note receivable $117,000

Cr Sales revenue $117,000

B. $6,143

C. Dr Cash $123,143

Cr Interest revenue $6,143

Cr Note receivable $117,000

Step-by-step explanation:

A. Preparation of the journal entry to record the sale on March 1, 2019.

Dr Note receivable $117,000

Cr Sales revenue $117,000

($35,000+ $27,000+ $45,000+$10,000)

B. Calculation to Determine how much interest Kelsey will receive if the note is repaid on December 1, 2019.

Using this formula

Interest = Face value * interest rate *n/12

Note is outstanding for period of 1 March -1Dec 2019 = 9 months

Let plug in the formula

Interest = $117,000 *.07 *9/12

Interest = $6,143

C. Preparation of Kelsey's journal entry to record the cash received to pay off the note and interest on December 1, 2019.

Dr Cash $123,143

($117,000+$6,143)

Cr Interest revenue $6,143

Cr Note receivable $117,000