Question

RecRoom Equipment Company received an $12,600, six-month, 5% note to settle an $12,600 unpaid balance owed by a customer.

The note is accepted by RecRoom on November 1, causing the company to increase its Notes Receivable and decrease its Accounts Receivable.
RecRoom adjusts its records for interest earned to its December 31 year-end.
RecRoom receives the interest on the note's maturity date.
RecRoom receives the principal on the note's maturity date.
Make journal entries:
A) Record the receipt of a note on November 1 for $8,000 to settle an outstanding accounts receivable balance of a customer.
B) Record the interest accrued on the note as of December 31.
C) Record the receipt of the interest on the note’s maturity date.
D) Record the receipt of the payment for the full principal.

Answer 1

A. Dr Notes Receivable $12,600

Cr Cash $12,600

B. Dr Interest Receivable $105

Cr Interest Revenue $105

C. Dr Cash $315

Cr Interest Receivable $105

Cr Interest Revenue $210

D. Dr Cash $12,600

Cr Notes Receivable $12,600

Step-by-step explanation:

A. Preparation of the journal entry to Record the receipt of a note on November 1

November 1

Dr Notes Receivable $12,600

Cr Cash $12,600

(Being to record the receipt of a note )

B. Preparation of the journal entry to Record the interest accrued on the note as of December 31.

December 31

Dr Interest Receivable $105

Cr Interest Revenue $105

($12,600 x .05 x 2/12= $105)

(Being to record interest accrued on the note)

C. Preparation of the journal entry to Record the receipt of the interest on the note’s maturity date.

Dr Cash $315

($12,600 x .05 x 6/12= $315)

Cr Interest Receivable $105

($12,600 x .05 x 2/12= $105)

Cr Interest Revenue $210

($12,600 x .05 x 4/12= $210)

(Being to record receipt of the interest on the note’s maturity date)

D. Preparation of the journal entry to Record the receipt of the payment for the full principal.

Dr Cash $12,600

Cr Notes Receivable $12,600

(Being to to Record the receipt of the payment for the full principal)