Question

1. April 20 Received $250,000 6% 120 day note from our customer for an overdue account. Required: Note: Please indicate the date for each of your journal entries. a) Record the receipt of the note and the appropriate date. b) Assuming the note was honored, record the collection on the note, and indicate the date. -) Assuming the note was dishonored, make necessary entries, if any and indicate the date your entry. - dianalınted at 14% by the bank.

Answer 1

Entry is posted in the books as follows:

ALB 1 2 No. Date 3 1 April 20 IDE (Amount in $) Debit Credit 250,000 250,000 Account title and Explanation 6% Note Receivable Accounts receivable (To 6% Note received for amount due from Customer) oco vou Awl 2 Aug 18 254,932 Bank Account Interest Income (6% p.a. for 120 days) 6% Note Receivable (To Note realised and amount and interest received) 4,932 250,000 10 11 12 3 Aug 18 254.932 13 4,932 250,000 Accounts receivable Interest Income (6% p.a. for 120 days) 6% Note Receivable (To principal amount and interest accrued tranferred to customer account as Note dishonored)

Entry 1 is passed to receive the Note and reducing the accounts receivable by same amount.

Entry 2 is passed when Note is honored and we receive the principal and the interest due on the note. Interest is the income for us and booked as such. If there is any period falling before 18 August, we can pass journal entry for Interest Receivable (Dr) and Interest Income (Cr) for the proportionate period.

Entry 3 is passed when Note is dishonored. In this case, we add the interest accrued on the principal amount of the note and make it due against the customer.