Question

Pharoah Company lends Concord industries $64800 on August 1, 2022, accepting a 9-month, 9% interest note. If Pharoah Company accrued interest at its December 31, 2022 year-end, what entry must it make to record the collection of the note and interest at its maturity date?

Answer 1

Answer:

1 May 2023  Cash                             69174 Dr

                          Interest Revenue          1944 Cr

                          Interest Receivable      2430 Cr

                          Notes Receivable         64800 Cr

Explanation:

The interest that is receivable over the whole life of the note is 64800 * 0.09 * 9/12 = $4374.

Out of this, 5 month's interest is already accrued and recorded as interest revenue on 31 december. Thus, on 1 May at maturity date, the remaining 4 month's interest will be recorded as interest revenue while the whole interest for 9 months will be receivable.