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Q8BE

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Intermediate Accounting (Kieso)
Found in: Page 128

Short Answer

Included in Gonzalez Company’s December 31 trial balance is a note receivable of $12,000. The note is a 4-month, 10% note dated October 1. Prepare Gonzalez’s December 31 adjusting entry to record $300 of accrued interest, and the February 1 journal entry to record receipt of $12,400 from the borrower.

The total amount of cash received is $12,400.

See the step by step solution

Step by Step Solution

Step by Step SolutionStep 1: Meaning of Journal Entry 

Journal entries are the first step in the accounting cycle. Journal entry is used to record all the business transactions and events. In recording the journal entry, the debit and credit should be equal.

Step 2: Journal Entries:

Gonzalez’s December 31 adjusting entry and February 1 journal entry are as follows:

Journal Entry

Date

Accounts Titles and Explanations

Debit

Credit

December 31

Interest Receivable

$ 300

Interest Revenue

$ 300

February 1

Cash

$ 12,400

Notes Receivable

$ 12,000

Interest Receivable

$ 300

Interest Revenue

$ 100

Working notes:

Interest Revenue = $ 300 (Given)

Notes Receivable = $ 12,000 (Given)

Interest Receivable = $ 300 (Given)

Interest revenue = [ $12,000 × 10% × 1/12] = $100

Cash = $12,400 (Given)

  • Interest revenue only calculated for January month i.e., 1 month.

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