Lecture_Notes_-_Assign_5_1

# A note receivable has the following items on it face

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A note receivable has the following items on it: Face amount – the original value of the note Date – date the note was issued Interest rate – annual interest rate Period – number of days until due Items to be determined : 1. Interest Interest = P * R * T P = principle, also called face amount R = interest rate T = time # of days / 360 The 360 represents the number of days in a year. The number 360 is used instead of 365, because 360 tends to give answers in nice whole numbers. Before the advent of computers when interest was calculated manually, 360 was the standard for a year. 2. Due date Add the period to the issue date to get the due date. Example 1: A 60 day note issued July 15 Solution: July 15-31 16 (31 days in July) August 31 47 September 13 60 days The answer is September 13 th . Example 2: 120 day note, issued September 7 th Solution Sept 7-30 23 October 31 November 30 December 31 115 January 5

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total 120 Answer: January 5 th 3. Maturity Value maturity value is the total cash received on the due date interest + face amount Journal Entries: 1. To record the issuance of the note Dr Notes Receivable Cr Accounts Receivable (Assume a customer needed more time to pay and agreed to pay interest for an extended pay period.) 2. To record the receipt of cash on the due date Dr Cash (for the maturity value) Cr Interest Revenue Cr Note Receivable 3. Assume #2 never happened and the customer did not pay on the due date. Dr Accounts Receivable (for the maturity value) Cr Interest Revenue Cr Note Receivable
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