Uniform Supply accepted a $4,800, 90-day, 10% note from Tracy Janitorial on October 17. What entry should Uniform Supply make on January 15 of the next year when the note is paid, assuming interest was properly accrued at the previous December 31 year end?
A)Debit Notes Receivable $4,800; debit Interest Receivable $120; credit Sales $4,920.
B)Debit Cash $4,920; credit Notes Receivable $4,920.
C)Debit Cash $4,920; credit Interest Revenue $100; credit Interest Receivable $20; credit Notes Receivable $4,800.
D)Debit Cash $4,920; credit Interest Revenue $20; credit Interest Receivable $100; credit Notes Receivable $4,800.
E)Debit Cash $4,920; credit Interest Revenue $120; credit Notes Receivable $4,800.

Question

Quizplus · Accepted Answer

The note's interest for the 90 days is $120 ($4,800 x 10% x 90/360). By December 31, 75 days of interest ($100) would have been accrued. On January 15, the remaining 15 days of interest ($20) is recognized as interest revenue. The entry records the cash received, clears the note receivable, and recognizes the interest revenue and receivable.

Uniform Supply Accepted a $4,800, 90-Day, 10% Note from Tracy