Question

On September 30, 2016, the Esquire Company sold some merchandise to Callxpress Company. In payment, Esquire agreed to accept a note maturing on June 30, 2017. The note is a $50,000, 9-month, 8% interest-bearing note requiring the payment of principal and interest on June 30, 2017. The 6% rate is appropriate in this situation. The adjusting entry that the Callxpress Company should prepare on December 31, 2016 includes a:

Answer 1

Book value of note receivable = $50,000 (same as face value since the note earns interest)

Interest revenue = $50,000 face value x 8% per year x 3/12 months = $1,000

Adjusting entry:

December 31, 2016, interest receivable

Dr Interest receivable 1,000

Cr Interest revenue 1,000