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17 November, 09:14

Jasper makes a $43,000, 90-day, 9.0% cash loan to Clayborn Co. Jasper's entry to record the collection of the note and interest at maturity should be: (Use 360 days a year.)

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  1. 17 November, 09:34
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    Debit Cash Account $43,967.5

    Credit Interest Income $967.5

    Credit Notes Receivable $43,000

    Explanation:

    The reason is that when the note is collected, the cash is increased by the amount lend and the income accrued by the 3 months.

    So the amount collected is

    Cash collected = $43,000 Amount lend + Interest Income

    And

    Interest Income = Amount lend * Interest Percent * For the days / 360

    = $43,000 * 9% * 90 / 360 = $967.5

    Now putting the interest income value in the above equation, we have:

    Cash collected = $43,000 Amount lend + $967.5 = $43,967.5

    So the cash is increase by $43,967.5, interest income increased is by $967.5 and the Note receivable is at amount issued which has been decreased by $43,000.

    So the entry would be:

    Debit Cash Account $43,967.5

    Credit Interest Income $967.5

    Credit Notes Receivable $43,000
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