Note receivable

Question

Prefix Supply Company received a 120-day, 6% note for $500,000, dated April 12 from a customer on account. Assume 360-days in a year.

Question Content Area
a. Determine the due date of the note.

b. Determine the maturity value of the note.
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Question Content Area
c. Journalize the entry to record the receipt of the payment of the note at maturity. If an amount box does not require an entry, leave it blank.

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Answer 1

To solve the questions regarding the note receivable, let's break everything down step by step.

a. Determine the due date of the note.

The note is dated April 12 and lasts for 120 days.

1. Start from April 12 and count forward 120 days:
   • April: 30 days - 12 = 18 days remaining
   • May: 31 days
   • June: 30 days
   • July: 31 days
   • Total so far: 18 (April) + 31 (May) + 30 (June) + 31 (July) = 110 days
   • We need an additional 10 days into August.

So, the due date of the note is August 10.

Due Date: August 10

b. Determine the maturity value of the note.

The maturity value (MV) of a note is calculated using the formula:

\[ \text{Maturity Value} = \text{Principal} + \text{Interest} \]

1. First, calculate the interest:
   • Principal = $500,000
   • Rate = 6% = 0.06
   • Time = 120 days

Using the formula for interest:

\[ \text{Interest} = \text{Principal} \times \text{Rate} \times \left(\frac{\text{Time}}{360}\right) \]

\[ \text{Interest} = 500,000 \times 0.06 \times \left(\frac{120}{360}\right) \]

Calculating the interest:

\[ \text{Interest} = 500,000 \times 0.06 \times \frac{1}{3} = 500,000 \times 0.02 = 10,000 \]

2. Now, calculate the maturity value:

\[ \text{Maturity Value} = \text{Principal} + \text{Interest} = 500,000 + 10,000 = 510,000 \]

Maturity Value: $510,000

c. Journalize the entry to record the receipt of the payment of the note at maturity.

At maturity, the entry to record the receipt would be:

1. Debit Cash for the total maturity amount received.
2. Credit Notes Receivable for the principal amount of the note.
3. Credit Interest Revenue for the interest earned on the note.

Journal Entry:

| Account | Debit | Credit | |-------------------------|--------------|--------------| | Cash | $510,000 | | | Notes Receivable | | $500,000 | | Interest Revenue | | $10,000 |

Here's the final journal entry using your requested format:

Cash               $510,000
    Notes Receivable              $500,000
    Interest Revenue               $10,000

Fill in the blanks accordingly using the information given above.