Question

Prepare journal entries for the following selected transactions of Danica Company for 2016. 2016

Dec. 13 Accepted a $9,500, 45-day, 8% note dated December 13 in granting Miranda Lee a time extension on her past-due account receivable.

31 Prepared an adjusting entry to record the accrued interest on the Lee note.

Short answer

When an organization offers a time extension on the due amount tothe debtor,the company is providing additional time to make the payment to save itself from suffering losses.

Step-by-step solution

Journal entry

Date	Particulars	Debit	Credit
Dec 13	Notes receivables- Miranda Lee	$9,500
	Accounts receivables- Miranda Lee		$9,500
	(To record the issuance of note)
Dec 31	Interest receivables	$38
	Interest revenue		$38
	(To record the interest)

Working notes

$\begin{array}{rcl}\mathrm{Interest}\mathrm{revenue}& =& \mathrm{Face}\mathrm{value}\mathrm{of}\mathrm{note}\times \mathrm{Rate}\mathrm{of}\mathrm{interest}\times \frac{\mathrm{Number}\mathrm{of}\mathrm{days}}{360}\\ & =& \$9,500\times \frac{8}{100}\times \frac{18}{360}\\ & =& \$38\end{array}$