Question

Jasper makes a $43,000, 90-day, 9.0% cash loan to Clayborn Co. Jasper's entry to record the collection of the note and interest at maturity should be: (Use 360 days a year.)

Answer 1

Answer:

Debit Cash Account $43,967.5

Credit                   Interest Income     $967.5

Credit                   Notes Receivable $43,000

Explanation:

The reason is that when the note is collected, the cash is increased by the amount lend and the income accrued by the 3 months.

So the amount collected is

Cash collected = $43,000 Amount lend + Interest Income

And

Interest Income = Amount lend * Interest Percent * For the days / 360

= $43,000 * 9% * 90 / 360 = $967.5

Now putting the interest income value in the above equation, we have:

Cash collected = $43,000 Amount lend + $967.5 = $43,967.5

So the cash is increase by $43,967.5, interest income increased is by $967.5 and the Note receivable is at amount issued which has been decreased by $43,000.

So the entry would be:

Debit Cash Account $43,967.5

Credit                   Interest Income     $967.5

Credit                   Notes Receivable $43,000