Recording Notes Receivable

On December 1, 20x1, Company N sold 1,000 units of merchandise at $120 per unit price and received a three month, 6% interest note with the face value of $120,000. The cost of merchandise is $80 per unit. Prepare the journal entries to record this transaction.

Notes receivable

120,000

   Sales revenue

120,000

Cost of goods sold

80,000

   Merchandise

80,000

Accrued Interest Revenue

At December 31, 20x1, Company N recorded interest receivable for the month of December 20x1. Prepare the journal entry to accrued interest revenue.

        Annual interest rate = 6%,

        Monthly interest rate = 6% x 1/12 = 0.5%

        Interest revenue for December 20x1 = $120,000 x 6% x 1/12 = $600

Interest receivable

600

   Interest revenue

600

Collection of Notes Receivable

On February 28, 20x2, the Company received payment of the face amount of the note and interest. Prepare the journal entry to record this transaction.

Cash

121,800

   Notes receivable

120,000

   Interest receivable

600

   Interest revenue

1,200

        [Note]

        Total amount collected includes three components.

        a. Face amount of the note = $120,000

        b. Accrued interest receivable for December 20x1 = $600

        c. Interest revenue for January and February 20x2 = $1,200