Question

On March 1, Terrell & Associates provides legal services to Whole Grain Bakery regarding some recent food poisoning complaints. Legal services total $10,700. In payment for the services, Whole Grain Bakery signs a 10% note requiring the payment of the face amount and interest to Terrell & Associates on September 1.

Required:For Terrell & Associates, record the acceptance of the note receivable on March 1 and the cash collection on September 1. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)

Answer 1

Terrell & Associates records the acceptance of a note receivable on March 1 by debiting Notes Receivable and crediting Legal Services Revenue. Upon collection on September 1, they debit Cash and credit Notes Receivable along with Interest Revenue for the principal amount and accrued interest.

Step-by-step explanation:

On March 1st, Terrell & Associates accepts a note receivable in exchange for legal services provided to Whole Grain Bakery. The journal entry to record the acceptance of the note receivable would be a debit to Notes Receivable for the amount of the legal services provided, $10,700, and a credit to Legal Services Revenue for the same amount:

• Debit Notes Receivable: $10,700
• Credit Legal Services Revenue: $10,700

On September 1st, when the note is due, Whole Grain Bakery pays the face value plus interest. Over six months, the 10% annual interest rate accrues $535 on the principal ($10,700 * 10% * 6/12). The journal entry to record the cash collection would include a debit to Cash for the total amount received ($11,235), a credit to Notes Receivable for the principal amount ($10,700), and a credit to Interest Revenue for the interest earned ($535):

• Debit Cash: $11,235
• Credit Notes Receivable: $10,700
• Credit Interest Revenue: $535

Answer 2

note receivables 10,700 debit

fees earned 10,700 credit

--to recortd acceptance of promissory note forlegal services--

cash 11,235 debit

interest revenue 535 credit

note receivable 10,700 credit

--to record collection of the note--

Step-by-step explanation:

acceptance: we will declare the revenue and create the note receivable

then, on September 1st we calculate the interest and recognize the revenue for them:

principal x rate x time = interest

10,700 x 10% x 6 month = 10,700 x 0.1 x 0.5 = 535 dollars

We will recieve in cash principal plus interest

and write-off the receivables.