1.
Prepare the acceptance of the note on December 1, 2021.
1.
![Check Mark](/static/check-mark.png)
Explanation of Solution
Note receivable:
Note receivable refers to a written promise for the amounts to be received within a stipulated period of time. This written promise is issued by a debtor or borrower to lender or creditor. Notes receivable is an asset of a business.
Date | Account Title and Explanation | Debit($) | Credit($) | |
December 1, 2021 | Notes receivable (1) | 90,000 | ||
Service revenue | 90,000 | |||
(To record the services provided and acceptance of note) |
Table (1)
- Notes receivable is an asset and increased it. So, debit notes
receivable account. - Service revenue is a component of stock holders’ equity and increased it. So credit service revenue account.
2.
Prepare journal entry to record the interest collected on December 1, for 2022 and 2023 and the adjustment for interest revenue on December 31, 2021, 2022 and 2023.
2.
![Check Mark](/static/check-mark.png)
Explanation of Solution
Journal entry for adjustment of interest receivable:
Date | Account Title and Explanation | Debit ($) | Credit ($) | |
December 31, 2021 | Interest receivable (1) | 750 | ||
Interest revenue | 750 | |||
(To record adjustment for accrued interest) |
Table (2)
Journal entry for receipt of annual interest:
Date | Account Title and Explanation | Debit ($) | Credit ($) | |
December 1, 2022 | Cash | 9,000 | ||
Interest receivable (1) | 750 | |||
Interest revenue (2) | 8,250 | |||
(To record receipt of annual interest) |
Table (3)
Journal entry for adjustment for accrues interest:
Date | Account Title and Explanation | Debit ($) | Credit ($) | |
December 31, 2022 | Interest receivable (1) | 750 | ||
Interest revenue | 750 | |||
(To record adjustment for accrued interest) |
Table (4)
Journal entry for receipt of annual interest:
Date | Account Title and Explanation | Debit ($) | Credit ($) | |
December 1, 2023 | Cash | 9,000 | ||
Interest receivable (1) | 750 | |||
Interest revenue (2) | 8,250 | |||
(To record receipt of annual interest) |
Table (5)
Journal entry for adjustment for accrues interest:
Date | Account Title and Explanation | Debit ($) | Credit ($) | |
December 31, 2023 | Interest receivable (1) | 750 | ||
Interest revenue | 750 | |||
(To record adjustment for accrued interest) |
Table (6)
Working notes:
Calculate the amount of interest revenue accrued for 1 month (December 1 to 31):
(1)
Calculate the amount of interest revenue earned from January 1 to November 30:
(2)
It is given that interest has to be paid each year on December 1. But, interest revenue has to be recorded and adjusted at the end of each year that is December 31 for $750.
For Adjustment of interest receivable on December 31, 2021:
- Interest receivable is an asset and it increases. Hence debit the interest receivable.
- Interest revenue is a component of stock holders’ equity and it is increased. Hence credit the interest revenue.
For receiving of annual interest on December 1, 2022:
- Cash is an asset and it increases. Hence debit the cash account.
- Interest receivable is an asset and it decreases. Hence credit the interest receivable account.
- Interest revenue is a component of
stockholders’ equity and it increases. Hence credit the interest revenue account.
For adjustment of interest receivable on December 31, 2022:
- Interest receivable is an asset and it increases. Hence debit the interest receivable.
- Interest revenue is a component of stock holders’ equity and increased it. Hence credit the interest revenue.
For receiving of annual interest on December 1, 2023:
- Cash is an asset and it increases. Hence debit the cash account.
- Interest receivable is an asset and it decreases. Hence credit the interest receivable account.
- Interest revenue is a component of stockholders’ equity and it increases. Hence credit the interest revenue account.
For adjustment of interest receivable on December 31, 2023:
- Interest receivable is an asset and it increases. Hence debit the interest receivable
- Interest revenue is a component of stock holders’ equity and increased it. Hence credit the interest revenue.
3.
Record the journal entry for Cash collection on December 1, 2024:
3.
![Check Mark](/static/check-mark.png)
Explanation of Solution
Journal entry for cash collection on December 1, 2024:
Date | Account Title and Explanation | Debit ($) | Credit ($) | |
December 1, 2024 | Cash | 99,000 | ||
Notes receivable | 90,000 | |||
Interest receivable (1) | 750 | |||
Interest revenue (2) | 8,250 | |||
(To record cash collection of the note and interest) |
Table (7)
For receiving of annual interest on December 1, 2024:
- Cash is an asset and it increases. Hence debit the cash account.
- Notes receivable is an asset and it decreases. Hence credit the notes receivable account.
- Interest receivable is an asset and it decreases. Hence credit the interest receivable account.
- Interest revenue is a component of stockholders’ equity and it increases. Hence credit the interest revenue account.
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Chapter 5 Solutions
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