Recording Entries for the Discounting of a Note Receivable
Aerobic Sports Company completed the following 2020 transactions related to a note receivable.
Prepare the journal entries, including any interest earned, that Aerobic Sports Company should make on February 1, 2020, and March 1, 2020.
Note: Round your answers to the nearest whole dollar.
a. February 1, 2020—Received a $520,000, 9%, interest-bearing, six-month note from Temple Company for land that had a carrying value of $156,000.
Homework Answers
A) Journal entry
| Date | Particulars | Debit | Credit |
| Feb 1, 2020 | Note receivable | $ 520,000 | |
| Gain on sale of land | $ 364,000 | ||
| Land | $ 156,000 |
B) Journal entries
| Date | Particulars | Debit | Credit |
| March 1, 2020 | Interest receivable | $ 3,900 | |
| Interest revenue | $ 3,900 | ||
| [ $ 520,000 X 9/100 X 1/12] | |||
| March 1,2020 | Cash | $ 516,230 | |
| Loss on sale of receivables | $ 7,670 | ||
| Interest receivables | $ 3,900 | ||
| Note receivable | $ 520,000 |
Working for the calculating maturity value
| Face value of note receivable | $ 520,000 |
| Add: Interest { $ 520,000 X 9/100 X 6/12 } | $ 23,400 |
| Maturity value | $ 543,400 |
Working for the calculating discount charged by bank
| Discount charged by bank | |
| { $ 543,400 X 12/100 X 5/12} | $ 27,170 |
Working for calculation of the proceeds
| Maturity value | $543,400 |
| Less : Discount charged by bank | $ 27,170 |
| Proceed | $ 516,230 |
Working for calculation of net interest income or expenses (loss)
| Carrying value | $ 520,000 |
| Add: Interest earned and receivable { $ 520,000 X 9/100 X 1/12} | $ 3,900 |
| $ 523,900 | |
| Less: Proceed | $ 516,230 |
| Sale on loss of receivables | $ 7,670 |
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Recording Entries for the Discounting of a Note
Receivable
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