Sunshine Service Center received a 120-day, 6% note for $40,000, dated April 12 from a customer on account. Assume 360 days per year.
a. Determine the due date of the
note.
b. Determine the maturity value of the note.
When required, round your answers to the nearest dollar.
$
c. Journalize the entry to record the receipt of the payment of the note at maturity. If an amount box does not require an entry, leave it blank. When required, round your answers to the nearest dollar.
Aug. 10 | |||
1. Determination of Due Date :
The months and the number of days remaining each month till 120 days are shown in the following table:
Note: The bill is issued on April 12
Month | Remaining Number of Days | Total Number of Days |
---|---|---|
April | 30 - 12 = 18 days | 18 days |
May | 31 days | 49 days |
June | 30 days | 79 days |
July | 31 days | 110 days |
August | 10 days | 120 days |
Therefore,
Due date of the note = 10th August
2. Determination of Maturity Value of Note :
Given,
Face Value = $40,000
Interest = 6% p.a. or 0.06
Annual interest = $ 40,000 * 6% = $2,400
But the note is issued only for 120 days. So interest will only be available for 12 days which can be calculated as follows :
$2400 * (120 days ÷ 360 days )
= $800
So, Sunshine Service Center will recieve $ 40,000 , which is the face value of the note , and $800 interest on maturity.
Thus, Maturity Value of the Note = $40,800
3) Journal Entries:
Date | Particulars | Debit | Credit |
---|---|---|---|
Aug 10 | Notes Receivable | $40,000 | |
Accounts Receivable | $40,000 | ||
[ Being the accounts receivable reduced to the value of the note, upon receipt of the note ] | |||
Aug 10 | Cash | $40,800 | |
Notes Receivable | $40,000 | ||
Interest | $800 | ||
[ Being the entry for showing the cash received and interest being recorded ] |
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