1.
Prepare the acceptance of the note on April 15, 2021.
1.
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($) | Credit($) | |
April 15, 2021 | Notes receivable (1) | 110,000 | ||
Service revenue | 110,000 | |||
(To record the services provided and acceptance of note) |
Table (1)
- Notes receivable is an asset and increased it. So, debit notes
receivable account with $110,000. - Service revenue is a component of stock holders’ equity and increased it. So credit service revenue with $110,000.
2.
Record the interest collected on April 15 for 2022 and 2023 and the adjustment for interest revenue on December 31, 2021, 2022 and 2023.
2.
Explanation of Solution
Interest receivables:
Interest receivables, are non-trade receivables as these are not resulted from sales transaction or business operations.
Note receivable:
Note receivable refers to a written promise for the amounts to be received within a stipulated period of time. This written promise is issued by a debtor or borrower to lender or creditor. Notes receivable is an asset of a business.
Journal entry for adjustment of interest receivable:
Date | Account Title and Explanation | Debit ($) | Credit ($) | |
December 31, 2021 | Interest receivable (1) | 9,350 | ||
Interest revenue | 9,350 | |||
(To record adjustment for accrued interest) |
Table (2)
Journal entry for receipt of annual interest:
Date | Account Title and Explanation | Debit ($) | Credit ($) | |
April 15, 2022 | Cash | 13,200 | ||
Interest receivable (1) | 9,350 | |||
Interest revenue (2) | 3,850 | |||
(To record receipt of annual interest) |
Table (3)
Journal entry for adjustment for accrued interest:
Date | Account Title and Explanation | Debit ($) | Credit ($) | |
December 31, 2022 | Interest receivable (1) | 9,350 | ||
Interest revenue | 9,350 | |||
(To record adjustment for accrued interest) |
Table (4)
Journal entry for receipt of annual interest:
Date | Account Title and Explanation | Debit ($) | Credit ($) | |
April 15, 2023 | Cash | 13,200 | ||
Interest receivable (1) | 9,350 | |||
Interest revenue (2) | 3,850 | |||
(To record receipt of annual interest) |
Table (5)
Journal entry for adjustment for accrues interest:
Date | Account Title and Explanation | Debit ($) | Credit ($) | |
December 31, 2023 | Interest receivable (1) | 9,350 | ||
Interest revenue | 9,350 | |||
(To record adjustment for accrued interest) |
Table (6)
For Adjustment of interest receivable on December 31, 2021:
- Interest receivable is an asset and it increases. Hence debit the interest receivable
- Interest revenue is a component of stock holders’ equity and increased it. Hence credit the interest revenue.
Working notes:
Calculate interest revenue for 8.5 months.
(1)
For receiving of annual interest on April 15, 2022:
- Cash is an asset and it increases. Hence debit the cash account.
- Interest receivable is an asset and it decreases. Hence credit the interest receivable account.
- Interest revenue is a component of stockholders’ equity and it increases. Hence credit the interest revenue account.
Working notes:
Calculate the amount of interest revenue for 3.5 months.
(2)
For adjustment of interest receivable on December 31, 2022:
- Interest receivable is an asset and it increases. Hence debit the interest receivable
- Interest revenue is a component of stock holders’ equity and increased it. Hence credit the interest revenue.
For receiving of annual interest on April 15, 2023:
- Cash is an asset and it increases. Hence debit the cash account.
- Interest receivable is an asset and it decreases. Hence credit the interest receivable account.
- Interest revenue is a component of stockholders’ equity and it increases. Hence credit the interest revenue account.
For adjustment of interest receivable on December 31, 2023:
- Interest receivable is an asset and it increases. Hence debit the interest receivable
- Interest revenue is a component of stock holders’ equity and increased it. Hence credit the interest revenue.
3.
Record the cash collection on April 15, 2024:
3.
Explanation of Solution
Journal entry for cash collection on April 15, 2024:
Date | Account Title and Explanation | Debit ($) | Credit ($) | |
April 15, 2024 | Cash | 123,200 | ||
Notes receivable | 110,000 | |||
Interest receivable (1) | 9,350 | |||
Interest revenue (2) | 3,850 | |||
(To record cash collection of the note and interest) |
Table (7)
For receiving of annual interest on April 15, 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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