Following are selected transactions for Vitalo Company. Nov. 1 Accepted a $16,000, 180-day, 5% note from Kelly White in granting a time extension on her past-due account receivable.
Dec. 31 Adjusted the year-end accounts for the accrued interest earned on the White note.
Apr. 30 White honored her note when presented for payment.

Calculate the interest amounts at December 31st and April 30th and use those calculated values to prepare your journal entries.

Answer and Explanation:

The Computation of interest amount is shown below:-

Particulars           Total through     Through maturity   Through maturity

                              Maturity              Nov. 1                            Jan 1

Principal               $16,000                 $16,000                     $16,000

Rate                          5%                       5%                               5%

Time                     180 ÷ 360            60 ÷ 360                  120 ÷ 360

Total interest         $400                    $133                             $267

2. The Journal entries are shown below:-

a. Notes receivable Dr, $16,000

         To accounts receivable $16,000

(Being issuance of notes is recorded)

b. Interest receivable Dr, $133

        To Interest revenue $133

(Being interest revenue is recorded)  

c. Cash Dr, $16,400

        To Notes receivable  $16,000

         To Interest revenue  $267

          To Interest receivable $133

(Being cash received is recorded)

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