Question

RecRoom Equipment Company received a $9,200, six-month, 9 percent note to settle a $9,200 unpaid balance owed by a customer.

1. The note is accepted by RecRoom on November 1, causing the company to increase its Notes Receivable and decrease its Accounts Receivable.
2. RecRoom adjusts its records for interest earned to its December 31 year-end.
3. RecRoom receives the interest on the note's maturity date.
4. RecRoom receives the principal on the note's maturity date.
Required:
Make journal entries:
a) Record the receipt of a note on November 1 for $8,000 to settle an outstanding accounts receivable balance of a customer.
b) Record the interest accrued on the note as of December 31.
c) Record the receipt of the interest on the note’s maturity date.
d) Record the receipt of the payment for the full principal.

Answer 1

RECROOM EQUIPMENT COMPANY

Date Description DR CR

a. Nov 1 Note Receivable 8000

Allowance on debt 1,200

Account Receivable 9,200

Being the settlement of customers debt

b. Dec 31 Interest receivable 120

Interest Income 120

Being the interest accrued at the year end

c. 30 April Cash 720

Interest receivable 120

Interest income 600

Being the receipt of interest at maturity date

d. April 30 Cash 8000

Note receivable 8,000

Being the settlement of principal at maturity

Step-by-step explanation: