Question

Journalize the following transactions of Al Rajhi Productions:                             

1. 1st February-Received 150,000 SR, 90 days, 9 per cent of an annual note dated 1st February from AL Babtan on behalf of the company.
2. 30 April – AL babtan company dishonored the note and requested a further note for 45 days at 15 percent per annum interest on the total amount charged on 30 April to AL babtan company.
3. May 31-Received the amount owing on the dishonored note plus interest at 15 per cent per annum for 45 days on the total amount charged to AL babtan on 30 April.

Answer 1

The journal entry in the books of Al Rajhi Productions is as follows:

Date	Accou nt and Explanation	Debit	Credit
1st February	Notes Receivable	150,000
	Account Receivable - AL Babtan		150,000
	(Recorded that Notes Receivable received)
30 April	Account Receivable - AL Babtan	156,251
	Notes Receivable		150,000
	Interest Revenue (150,000 *0.09 * 90/360)		3,375
	Interest Receivable (150,000 + 3,375) * 0.15 * 45/360		2,876
15 June	Cash	156,251
	Account Receivable - AL Babtan		156,251
	(Recorded that the amount receved on the dishonored note plus interest )

Note: 1) Assume that there are 360 days in a year.

  2) The note is extended further for 45 days from the date of 30 April , so due date is taken as 15 June instead specified May 31 is the question.