Question

The following selected transactions were completed by Fasteners Inc. Co., a supplier of buttons and zippers for clothing:

20Y3
Nov.	21	Received from McKenna Outer Wear Co., on account, a $54,000, 60-day, 7% note dated November 21 in settlement of a past due account.
Dec.	31	Recorded an adjusting entry for accrued interest on the note of November 21.
20Y4
Jan.	20	Received payment of note and interest from McKenna Outer Wear Co.

Journalize the entries to record the transactions. If no entry is required, simply skip to the next transaction. Refer to the Chart of Accounts for exact wording of account titles. Assume a 360-day year when calculating interest. Round answers to the nearest dollar amount.

Answer 1

Journal

Date	Account Title and Explanation	Debit	Credit
Nov 21, 2003	Note receivable	54,000
	Accounts receivable - McKenna Outer Wear Co.		54,000
Dec 31	interest receivable	420
	Interest revenue		420
Jan 20, 2004	Cash	54,630
	Interest revenue		210
	interest receivable		420
	Note receivable		54,000

Interest receivable at Dec 31, 2003 = Note receivable x Interest rate x 40/360

= 54,000 x 7% x 40/360

= $420

Interest revenue on Jan 20, 2004 = Note receivable x Interest rate x 20/360

= 54,000 x 7% x 20/360

= $210

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