Uniform Supply accepted a $4,800, 90-day, 10% note from Tracy Janitorial on October 17. If the note is dishonored, but Uniform Supply intends to continue collection efforts, what entry should Uniform Supply make on January 15 of the next year? (Assume no reversing entries are made.) (Use 360 days a year.)

Check the explanation

Explanation:

Solution: Journal entry for the purpose would be:

Cash A/c. Dr. 4920

Interest Revenue 20

Interest Receivable 100

Note Receivable. 4800

(Being due amount on note along with the interest collected)

Note:

Total interest on Note= 4800 x 10% x90/ 360 days

= $120

Interest accrued in previous year=$ 120 x 2.5/3 =$ 100

(i.e. represent in entry by way of interest receivable)

Interest income for current period =$(120-100)=$20

Assumed: Financial year ended on December 31st.

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