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1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

7. Receivables and Investments

Notes Receivable

Financial Accounting

7. Receivables and Investments

Notes Receivable

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Multiple Choice

On April 15, Holden Company received a 60-day, 12% note in the amount of $10,000 from a customer who was having difficulty paying his account. When preparing the April 30 financial statements, the necessary adjusting entry related to interest would include:

Debit to Note Receivable for $50

Debit to Interest Receivable for $50

Credit to Interest Receivable for $50

Credit to Note Receivable for $50

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Identify the principal amount of the note, which is $10,000.

Determine the interest rate, which is 12% per annum.

Calculate the time period for which interest needs to be accrued. Since the note was received on April 15 and the financial statements are prepared on April 30, the time period is 15 days.

Use the formula for calculating interest: Interest = Principal x Rate x Time. Here, Time should be expressed as a fraction of a year (15/365).

Determine the correct journal entry for the accrued interest. Since interest is earned but not yet received, debit Interest Receivable and credit Interest Revenue for the calculated interest amount.