Question

Exercke 8.17 Honouring a note LOA Prepare journal entries to record these transactions (round the answer to two decimal places) Oct. Dec. 31 Accepted a $15,000, six-month, 4.5% note dated today from Leann Grimes in granting a time extension on her past-due account. 31 Adjusted the books for the interest due on the Grimes note. 30 Grimes honoured her note when presented for payment. Apr.

Answer 1

Exercise 8 -17

Date	Particulars	Debit	Credit
October 31	Note receivable a/c	15000
	To Leann Grimes a/c		15000
	(Notes receivable being accepted in lieu of past due)
December 31	Interest receivable a/c(15000*4.5%*2/12)	112.50
	To Interest income a/c		112.50
	(Interest income for 2 months being recognized)
April 30	Cash a/c	15337.50
	To Notes receivable a/c		15000
	To Interest receivable a/c		112.50
	To Interest income a/c(15000*4.5%*4/12)		225.00
	(Notes receivable being paid along with interest for 6 months)

Exercise 8-15

1.

Interest income upto December 31 is recognized due to Revenue realization principle(Generally accepted accounting principle) as per which income is recongnized in the period in which it is incurred.Interest is earned on the notes receivable and is a receivable income even thougn it is actually realized on due date.

2.

Note receivable A = 4 months(September to December)

Note receivable B = 1 month(For December which is payable on January 1)

3.

Date	Particulars	Debit	Credit
December 31	Interest receivable(Note A) a/c(690000*6%*4/12)	13800
	To Interest income a/c		13800
	(Interest income for 4 months being recognized)
	Interest receivable(Note B) a/c(395000*4.5%*1/12)	1481.25
	To Interest income a/c		1481.25
	(Interest income for 1 months being recognized)