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23 May, 22:05

Exercise 5-15B Record notes receivable and interest revenue (LO5-7) On March 1, Company A provides legal services to Company B regarding some recent food poisoning complaints. Legal services total $9,100. In payment for the services, Company B signs a 8% note requiring the payment of the face amount and interest to Company A on September 1. Required: For Company A, record the acceptance of the note receivable on March 1 and the cash collection on September 1. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)

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  1. 23 May, 22:29
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    March 1: Note acceptance

    Debit Note receivable $9,100

    Credit Accounts receivable $9,100

    (To record note receivable from Company B)

    Sept 1: Cash collection

    Debit Cash $9,100

    Credit Note receivable $9,100

    (To record cash collection of note receivable)

    Debit Cash $364

    Credit Interest receivable $364

    (To record cash collection of interest receivable on note)

    Explanation:

    Note is a promissory note with a written promise made by the borrower to the lender (payee) to pay a certain, definite sum at a specified date.

    Interest revenue on the note is calculated as: Principal x Interest Rate x Time

    The total interest revenue is $9,100 x 8%/12 x 6 months = $364.

    Monthly interest revenue is therefore $364 / 6 months = $60.67.

    The 6 months is from March 1 to Sept. 1.

    On a monthly basis, Company A would accrue for the interest revenue as follows:

    Debit Interest receivable $60.67

    Credit Interest revenue $60.67

    (Interest accrual on notes receivable)
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