Question

Pharoah Company lends Concord industries $64800 on August 1, 2022, accepting a 9-month, 9% interest note. If Pharoah Company accrued interest at its December 31, 2022 year-end, what entry must it make to record the collection of the note and interest at its maturity date?

Answer 1

1 May 2023 Cash 69174 Dr

Interest Revenue 1944 Cr

Interest Receivable 2430 Cr

Notes Receivable 64800 Cr

Step-by-step explanation:

The interest that is receivable over the whole life of the note is 64800 * 0.09 * 9/12 = $4374.

Out of this, 5 month's interest is already accrued and recorded as interest revenue on 31 december. Thus, on 1 May at maturity date, the remaining 4 month's interest will be recorded as interest revenue while the whole interest for 9 months will be receivable.