Homework Answers
| Date | Particulars. | Amounts (Dr) | Amounts (Cr) |
| 16 May 2019 | Note receivables | $ 6,200 | |
| Cash | $ 6,200 | ||
| 30 June 2019 | Cash | $ 6.220.97 | |
| Interest expense | $ 40.18 | ||
| Note receivables | $ 6,200 | ||
| Interest revenue | $ 61.15 | ||
| (see the working below) |
Working
Face value of note = $ 6,200
Company hold the note for 45 days before discounting it. After 45 days company earned interest revenue
$ 6,200 X. 08 X 45/365 = $ 61.15
Since the note due date is ( 90-45 )= 45 days away, the bank discount = maturity value of note receivables X .13 X 45/365
Maturity value of note receivables =[ $ 6,200 + interest ] = $ 6,200 + [ $ 6,200 X. 08 X 90/365 ] = $ 6,200 + $ 122.30 = $ 6,322.30
So, bank discount = $ 6,322.30 X .13 X 45/365 = $ 101.33
Note face value + interest revenue = $ 6,200 + $ 61.15 = $ 6,261.15
Discount value of note = maturity value - discount = $ 6,322.30 - $ 101.33 = $ 6,220.97
Interest expenses = $ 6,261.15 - $ 6,220.97 = $ 40.18
On 31st July 2019 in the balance sheet Note receivables discounted is shown in the current liabilities section of the balance sheet. If the amount due on a note receivables is not collected at maturity, allowance for doubtful account should be immediately debited.
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