Question

On March 1, Terrell & Associates provides legal services to Whole Grain Bakery regarding somerecent food poisoning complaints. Legal services total $11,000. In payment for the services, WholeGrain Bakery signs a 9% 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 cashcollection on September 1.

Answer 1

The Journal entries are as follows:

(i) On march 01,

Legal service expenses a/c Dr. $11,000

To notes payable A/c $11,000

(To record the acceptance of the note receivable)

(ii) On September 1,

Notes payable a/c Dr. $11,000

Interest expense a/c Dr. $495

To cash a/c $11,495

(To record the cash collection)

Workings:

Interest expense = 11,000 × 9% × (6 ÷ 12)

= $495