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Spring Designs & Decorators issued a 120-day, 4% note for $60,000, dated April 13 to Jaffe...

Question:

Spring Designs & Decorators issued a 120-day, 4% note for $60,000, dated April 13 to Jaffe Furniture Company on account.

a. Determine the due date of the note.

b. Determine the maturity value of the note.

c. Journalize the entries to record the following: (1) receipt of the note by Jaffe Furniture and (2) receipt of payment of the note at maturity.

Notes payable:

Notes payable are the source of business financing. Notes payable refer to the promise made by the borrower to the lender for completing the payment obligation on any future date along with the interest charged on the borrowed amount.

Answer and Explanation:

a) Determination of due date:

Month Days
April 17 days
May 31 days
June 30 days
July 31 days
August 11 days
  • Therefore due date is 11 August.

b) Calculation of value on maturity date:

{eq}\begin{align*} \rm\text{Value on maturity} &= \rm\text {Principal} + \rm\text {interest}\\ &= \$ 60,000 + \left( \$ 60,000 \times 4\% \times \dfrac{120}{360} \right)\\ &= \$ 60,000 + \$ 800\\ &= \$ 60,800 \end{align*} {/eq}

c) Journal entries in the books of Jafee furniture:

Date Particular Amount (Dr.) Amount (Cr.)
13 April Notes receivable a/c $60,000
To Spring design and decorate a/c $60,000
(To record the receipts of notes)
  • Notes receivables are assets and it increasing, therefore it is debited.
  • Spring design and decorates are debtors and it is increasing, therefore it is credited.

Date Particular Amount (Dr.) Amount (Cr.)
11 August Cash a/c $60,800
To Notes receivables a/c $60,000
To Interest revenue a/c $800
(To record the receipts of payment due on notes at maturity)
  • Cash is an asset and it is increasing, therefore it is debited.
  • Notes receivable is an income and it is received, therefore it is credited.
  • Interest revenue is an income and it is received, therefore it is credited.

Learn more about this topic:

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