On September 1, Year 1, Vincent Company loaned $24,000. The note had a 7% interest rate and a one-year term. Prepare the entries in general journal format for the following:a) Acceptance of the note on September 1, Year 1b) Accrual of interest on December 31, Year 1c) Collection of principal and interest on August 31, Year 2
What will be an ideal response?
a) The acceptance of the note is recorded as a debit to notes receivable and a credit to cash.
b) Interest revenue recognized during Year 1 = Principal of $24,000 × Annual interest rate of 7% × 4/12 = $560
c) Interest revenue recognized during Year 2 = Principal of $24,000 × Annual interest rate of 7% × 8/12 = $1,120
Cash collected at maturity = Principal of $24,000 + Interest of $1,680 (or $560 + $1,120) = $25,680
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