Question

Young Company lends Dobson industries $40,000 on August 1, 2017, accepting a 9-month, 9% interest note. If Young accrued interest at its December 31,2017 year-end, what entry must it make to record the collection of the note and interest at its maturity date? a. Cash 42,700 40,000 2,700 Notes Receivable Interest Revenue 42,700 b. Cash 42,700 Notes Receivable 40,000 1,500 1,200 c. Notes Receivable Interest Receivable Interest Revenue 42,700 Cash 42,700 d. Cash 40,000 1,500 1,200 Notes Receivable Interest Receivable Interest Revenue

Answer 1

Entry must it make to record the collection of the note and interest at its maturity date:

Debit Cash $42,700

Credit Note Receivable $40,000

Credit Note Interest receivable $1,500

Credit Interest revenue $1,200

Step-by-step explanation:

Young Company lends Dobson industries $40,000 on August 1, 2017, accepting a 9-month, 9% interest note.

The amount of the interest per year = 9% x $40,000 = $3,600

The amount of the interest per month = $3,600/12 = $300

At December 31, 2017, the interest accrual = $300 x 5 = $1,500

Journal entries to record the interest accrual:

Debit Note Interest receivable $1,500

Credit Interest revenue $1,500

On maturity date, journal entries to record the collection:

Debit Cash $42,700

Credit Note Receivable $40,000

Credit Note Interest receivable $1,500

Credit Interest revenue $1,200