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1-On July 9, 2018, Omar Co. purchased a machine for 260,000 SA from Saudi Machine Company...

1-On July 9, 2018, Omar Co. purchased a machine for 260,000 SA from Saudi Machine Company (SMC). Omar gave SMC 7% note due in 120 days in payment for the machine. (5 Points)

a.What is the maturity date of the note?

b.How much interest will Omar pay to SMC on this note?

c.Pass the Journal entry for Notes Receivable transaction.

d.On October 16, 2018, Omar informs us that the company is unable to pay the note or interest?

e.What adjusting entry is required on December 2018?

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Answer #1

a. Maturity Date for the Note:

Date of the Note = 9-July-2018

Due days = 120 days

Maturity Date = 06-Nov-2018

b. Interest to be paid by the Omar to SMC:

Interest for 120 days = 260,000*7%*120/365

= 5,984

c. Journal Entry to be passed:

7% Notes Receivable A/C Dr. 260,000

To Sales A/c 260,000

e. a. Interest receivable A/c 8,775

To Interest A/c 8,775

b.   Omar A/c Dr. 268,775

To 7% Notes Receivable A/c 260,000

To Interest receivable A/c 8,775   

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