Question

Prepare the general journal entries for the following independent situations:

a. On 3/31/XX, received payment from Big red company for the maturity value of the note of $1,000 at 12% for 60 days

b. On 4/1/XX, discounted a $4,000, 12%, 60 day note dated 3/2/XX with a discount rate of 16%

Answer 1

	Date	Account titles and explanation			Debit	Credit
a.	3/31/XX	Cash	(Note:a)		1020
		Notes receivable				1000
		Interest income				20
		(Received payment on maturity of note)
b.	4/1/XX	Cash	(Note:b)		3971.2
		Interest expense			28.8
		Notes receivable				4000
		(Discounted note to bank)
	Notes
	a) Maturity value of note=1000+(1000*12%*60/360)=1020
	Interest income=1020-1000=20
	b) Discount=Maturity value*Discount rate*discount period
	Maturity value=4000+(4000*12%*60/360)=4080
	Discount=4080*16%*60/360=108.8
	Maturity value			4080
	Less: Discount			108.8
	Discounted value of note			3971.2