Question

Selkirk Company obtained a $20,000 note receivable from a customer on January 1, 2018. The note, along with interest at 12%, is due on July 1, 2018. On February 28, 2018, Selkirk discounted the note at Unionville Bank. The bank’s discount rate is 15%.

Required:
Prepare the journal entries required on February 28, 2018, to accrue interest and to record the discounting for Selkirk. Assume that the discounting is accounted for as a sale. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Date	Accounts Titles & Explanation	Debit	Credit
Feb 28, 2018	Interest receivable	$400
	Interest revenue		$400
	($20,000 × 12% × 2/12)
Feb 28, 2018	Cash	$20,140
	Loss on sale of note receivable	$260
	Notes Receivable		$20,000
	Interest receivable		$400
Working
	Face amount	$20,000
	Interest to maturity	$1,200
	($20,000 × 12% × 6/12)
	Maturity value	$21,200
	Discount	$1,060
	($21,200 × 15% × 4/12)
	Cash proceeds	$20,140