Homework Week 5 Chapter 08 problems score 011 of 1 pt P931

Homework: Week 5 - Chapter 08 problems score: 0.11 of 1 pt & P9-31A (similar to) Save 4 of 7 (4 complete) HW Score: 25.48%, 1.78 of 7 pts Question Help Christie Realty loaned money and received the following notes during 2016. EEE (Click the icon to view the notes received) Requirements 1. Determine the maturity date and maturity value of each note. 2. Journalize the entries to establish each Note Receivable. Include a single adjusting entry on December 31, 2016, the fiscal year-end, to record accrued interest revenue on any applicable note. Explanations are not required 3. Journalize the collection of principal and interest at maturity on the three notes. Explanations are not required Requirement 1. Determine the maturity date and maturity value of each nole. For eadh apoliaole nole, compunrin a 0 day yeur) Due date MonthvDay Year Maturity value Term 1 year 9 months Date Principal Amount Interest Rate Note (1) Oct. 1 (2) Jun. 30 (3) Jun 19 Ocd 1 2017 Mar. 30 2017 12,000 20,000 796 18% 8% 180 days Dec. 16 2016 18,000

Solution

The answer to the following questions:

1.The calculation of maturity date for each note is done by adding the given period which is either in days or in months to the original date the note was issued.

The calculation of maturity value is done by calculating the interest for the given period on that note.After that the amount receivable on the maturity date is the sum of the principal amount plus the interest revenue.

Interest Revenue =Principal * Rate

The interest revenue on the following notes are calculated as below:

Interest revenue on Note 1 =$12000*7%

                                       =$840

So the maturity value of Note 1 after 1 year term =$12000+$840

                                                                      =$12840

Interest Revenue on Note 2 =$20000*18% *272/360 the interest calculation is done on the basis of 360 days as given in the question.

                                        =$2720

So the maturity value of Note 2 after 9 months term =$20000+$2720

                                                                           =$22720

Interest Revenue on Note 3 =$18000*8%*180/360

                                        =$720

So the maturity value of Note 3 after 180 days =$18000+$720

                                                                   =$18720

3. When the principal amount and the interest accrued on each of the notes is received we can make a single adjustment entry to record those transactions.

     Note 1

            Bank A/C                                      Dr                    $12840

             To Notes Receivable                         Cr                                  $12000

             To Interest Receivable                       Cr                                   $840.

Note 2

            Bank A/C                                       Dr              $22720

              To Notes Receivable                         Cr                       $20000

              To Interest Receivable                       Cr                       $2720

Note 3

            Bank A/C                                         Dr                  $18720

              To Notes Receivable                            Cr                         $18000

              To Interest Receivable                          Cr                          $720

2.Since the adjustment entry is required as at 31st dec 2016

Note 2 Entry to set up note receivable :

                               Notes Receivable A/C                 Dr               $20000

                                 To Accounts Receivable                  Cr    $20000

Entry to accrue interest as at 31st Dec 2016 end

   Interest Receivable A/C Dr    $1840

                                  To Interest Income                           Cr                    $1840

   To record intrest accrued as at 31st Dec 2016

   ($20000*18%*184/360)      

Entry to record collection of note

   Bank A/C Dr    $22720

To Interest Income    Cr    $1840

To Interest Receivable Cr    $880

To Notes Receibale Cr    $20000

Note 1 Entry to set up note receivable :

                               Notes Receivable A/C                 Dr               $12000

                                 To Accounts Receivable                  Cr    $12000

Entry to accrue interest as at 31st Dec 2016 end

   Interest Receivable A/C Dr    $142

                                  To Interest Income                           Cr                    $142

   To record intrest accrued as at 31st Dec 2016

   ($12000*7%*61/360)      

Entry to record collection of note

   Bank A/C Dr    $12840

To Interest Income    Cr    $142

To Interest Receivable Cr    $698

To Notes Receibale Cr    $12000

Note 3 Entry to set up note receivable :in case of the Note 3 since the term is 180days which is coinciding with the term from June till Dec 2016.

               Bank A/C                                         Dr                  $18720

              To Notes Receivable                            Cr                         $18000

              To Interest Receivable                          Cr                          $720