Question

The following selected transactions were completed by Fasteners Inc. Co., a supplier of buttons and zippers for clothing:

20Y3
Nov. 21. Received from McKenna Outer Wear Co., on account, a $96,000, 60-day, 3% note dated November 21 in settlement of a past due account.
Dec. 31. Recorded an adjusting entry for accrued interest on the note of November 21. 20Y4
Jan. 20. Received payment of note and interest from McKenna Outer Wear Co.

Required:
Journalize the entries to record the transactions.

Answer 1

1. Nov-21

Dr Notes receivable $96,000

Cr Accounts receivable-McKenna Outer Wear Co. $96,000

2. Dec-31

Dr Interest receivable $320

Cr Interest revenue $ 320

3 Jan-20

Dr Cash $96,480

Cr Note Receivable $96,000

Cr Interest receivable $160

Cr Interest receivable $320

Step-by-step explanation:

Preparation of the journal entries

1. Nov-21

Dr Notes receivable $96,000

Cr Accounts receivable-McKenna Outer Wear Co. $96,000

(To record note received)

2. Dec-31

Dr Interest receivable $320

($96,000*3%*40/2/360)

Cr Interest revenue $ 320

(To record Interest accrued till Dec 31)

3 Jan-20

Dr Cash $96,480

($96,000+$160+$320)

Cr Note Receivable $96,000

Cr Interest receivable $160

($96,000*3%*20/2/360)

Cr Interest receivable $320 ($96,000*3%*40/2/360)

(To record payment received of note and interest)