Question

Spring Designs & Decorators issued a 180-day, 4% note for $76,800, dated April 13 to Jaffe 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 when calculating interest. C. Journalize the entries to record the following: (1) receipt of the note by Jaffe 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:

1. The computation of due date is shown below:-

Due date = Issue date + Time period in days

= 13 April + 180

Due date for the note = 17 April +31 May + 30 June + 31 July +31 August + 30 Sept + 10 Oct

= 10 October

2. The computation of the maturity value of the note is shown below:-

Maturity Value = Issued amount + Interest

= $76,800 + $76,800 × 6% × 180 ÷ 360

= $76,800 + $2,304

= $79,104

3. The Journal entry is shown below:-

Note receivable Dr, $76,800

To Account receivable $76,800

(Being receipt of the note by Jaffe Furniture is recorded)

Here we debited the notes receivable as it increase the assets and we credited the accounts receivable as it decreases the assets.

2. Cash Dr, $79,104

To Note receivable $76,800

To Interest Income $2,304

(Being receipt of payment of the note at maturity is recorded)

Here we debited the cash as increase the assets and we credited the notes receivable as it decrease the assets and interest income as increase the revenue.