Recroom equipment company received an $8,000, six-month, 6 percent note to settle an $8,000 unpaid balance owed by a customer.

a.
the note is accepted by recroom on november 1, causing the company to increase its notes receivable and decrease its accounts receivable.

b. recroom adjusts its records for interest its earned to its december 31 year-end.
c. recroom receives the interest on the note's maturity date.
d. recroom receives the principal on the note's maturity date.
question 1
make journal entries:

a) record the receipt of a note on november 1 for $8,000 to settle an outstanding accounts receivable balance of a customer.

b)record the interest accrued on the note as of december 31.

c)record the receipt of the interest on the note’s maturity date.

d)record the receipt of the payment for the full principal.

RecRoom Equipment Company: Journal Entries are as follows:

Journal Entries:

a. November 1:

Debit Notes Receivable $8,000

Credit Accounts Receivable $8,000

To record the note receivable in settlement of outstanding balance.

b. December 31:

Debit Interest Receivable $80

Credit Interest Revenue $80

($8,000 x 6% x 2/12)

To record the interest accrued.

c. April 30:

Debit Cash $240

Credit Interest Receivable $80

Credit Interest Revenue $160

To record the receipt of the interest on maturity.

d. April 30:

Debit Cash $8,000

Credit Notes Receivable $8,000

To record the receipt of the principal repayment.

Data Analysis:

a. November 1: Notes Receivable $8,000 Accounts Receivable $8,000

b. December 31: Interest Receivable $80 Interest Revenue $80 ($8,000 x 6% x 2/12)

c. April 30: Cash $240 Interest Receivable $80 Interest Revenue $160

d. April 30: Cash $8,000 Notes Receivable $8,000

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Explanation:

The journal entries are shown below:

a. Notes receivable A/c Dr $8,000

     To Accounts receivable $8,000

(Being receipt of note is recorded)

b. Interest receivable A/c Dr $80

           To Interest revenue A/c $80

(Being accrued interest is recorded)

The computation of accrued interest is shown below:

= Principal × rate of interest × number of months ÷ (total number of months in a year)  

= $8,000 × 6% × (2 months ÷ 12 months)

= $80

The 2 months is calculated from November 30 to December 31

c. Cash A/c Dr $240

      To Interest receivable $80

      To Interest revenue $160

(Being cash received in respect of interest accrual is recorded)

The computation of accrued interest is shown below:

= Principal × rate of interest × number of months ÷ (total number of months in a year)  

= $8,000 × 6% × (4 months ÷ 12 months)

= $160

The 4 months is calculated from November 30 to April 30

d. Cash A/c Dr $10,200

         To Notes receivable A/c $10,200

(Being the receipt of the payment is recorded)

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