Question

Question: On December 1, Kyle Corporation accepted a 60-day, 9%, $12,000 note receivable from J. Michael in exchange for his account receivable.

Requirements

1. Journalize the transaction on December 1.

2. Journalize the adjusting entry needed on December 31 to accrue interest revenue. Round to the nearest dollar.

3. Journalize the collection of the principal and interest at maturity. Specify the date. Round to the nearest dollar.

Short answer

Answer:

1. The notes receivable-J. Michael account is debited and accounts receivable-J. Michael is credited with $12,000.
2. Interest receivable is debited and interest revenue is credited by $89.
3. Cash account is debited by $12,178, and notes receivable- J. Michael is credited by $12,0000, interest revenue by $89, interest receivable by $89.

Step-by-step solution

Definition of notes receivable

The notes receivable means the note that is received by the company. The notes receivable are issued by the debtor of the company and the debtor pays interest to the company on the notes.

Step 2: Journal entry of accepting notes

(a) Entry at the time of Exchange

Date	Account and explanation	Debit	Credit
December 1	Notes receivable – J. Michael	$12,000
	Accounts Receivable- J. Michael		$12,000
	(9% notes accepted by the company)

Adjusting entry to accrued interest revenue

(b) Journal entry for recording accrued revenue

$$\begin{gathered} \mathbf{Interest} \mathbf{Note} \mathbf{=}\mathbf{Principal}\mathbf{\times }\mathbf{Rate}\mathbf{\times }\mathbf{Time} \mathbf{Period} \\ \mathbf{=}\mathbf{\$}\mathbf{12}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{9}\mathbf{\%}\mathbf{\times }\frac{\mathbf{30}}{\mathbf{365}} \\ \mathbf{=}\mathbf{\$}\mathbf{89} \end{gathered}$$

Date	Account and explanation	Debit	Credit
December 31	Interest Receivable	$89
	Interest Revenue		$89
	(Recording of accrued interest revenue)

 Step 4: Journal entry of a collection of the principal and interest at maturity

(c) The maturity date is determined by counting the actual days from the date of issue. The date of the issue was December 1, and the Maturity date was 30^th.

Date	Account and explanation	Debit	Credit
January 30	Cash	$12,178
	Interest Receivable		$89
	Interest Revenue		$89
	Notes Receivable- J. Michael		$12,000
	(Notes receivable collected at maturity)