Question

Valley Designs issued a 120-day, 6% note for $80,000 dated April 20 to Bork Furniture Company on account. Required: A. Determine the due date of the note. B. Determine the maturity value of the note. Assume a 360-day year. C. Journalize the entries to record the following: (1) receipt of the note by Bork Furniture and (2) receipt of payment of the note at maturity. Refer to the Chart of Accounts for exact wording of account titles.

Answer 1

Answer and Explanation:

a. The due date of the note is

Take 120 days from April 20 i.e

10 days of April + 31 days in May + 30 days in June + 31 days in July + 18 days in August

So, the due date is August 18

b. Now the maturity value of the note is

= Principal value of the note + interest

= $80,000 + $80,000 × 6% × 120 days ÷ 360 days

= $80,000 + $1,600

= $81,600

c-1 Now the journal entry is

Note receivable $80,000

To Account receivable $80,000

(Being the receipt of the note is recorded)

For recording this we debited the note receivable as it increase the assets and credited the account receivable as it decreased the assets

c-2 Cash Dr $81,600

To Note receivable $80,000

To Interest revenue $1,600

(Being the receipt of the payment of the note is recorded)\

For recording this we debited the cash as it increased the assets and credited the note receivable as it decreased the assets and increased the revenue so the interest revenue is credited