Ch7. Video 16 - Notes Receivable example

The video tutorial explains how to journalize loan transactions between Kilo and Lima Company, focusing on interest calculations and journal entries. It covers three examples: a nine-month note crossing fiscal years, a nine-month note within a single year, and a 90-day note using day-based interest calculations. The tutorial emphasizes the importance of adjusting entries at year-end and recognizing interest revenue.

What is the initial journal entry when Kilo Company loans $50,000 to Lima Company?

• Debit Interest Revenue, Credit Cash

• Debit Notes Receivable, Credit Cash

• Debit Cash, Credit Interest Receivable

• Debit Cash, Credit Notes Receivable

Why is an interest adjustment necessary on December 31st for the note starting on July 1st?

• To record the full interest for the year

• To adjust for interest earned but not yet received

• To calculate the principal amount

• To close the books for the year

How is the interest accrued up to December 31st calculated?

• Principal amount times interest rate times total months

• Principal amount times interest rate times remaining months

• Principal amount times interest rate times fraction of the year

• Principal amount times interest rate times days in the year

What is the total interest accrued by December 31st for the note starting on July 1st?

• $2,250

• $1,500

• $750

• $1,000

What is the final journal entry when the note matures on April 1st?

• Debit Interest Receivable, Credit Cash

• Debit Cash, Credit Notes Receivable and Interest Revenue

• Debit Notes Receivable, Credit Cash and Interest Revenue

• Debit Cash, Credit Interest Receivable

In the second example, why is there no need for a mid-year interest adjustment?

• The note matures before December 31st

• The interest rate is lower

• The principal amount is different

• The note is for a shorter duration

How is the interest calculated for a note that does not cross into a new year?

• Using the full year fraction

• Using the remaining months

• Using the days in the year

• Using the total interest for the note

What is the principal amount used in the third example with a 90-day note?

• $50,000

• $60,000

• $70,000

• $40,000

How is the interest calculated for the 90-day note example?

• Using 365 days in a year

• Using 360 days in a year

• Using 180 days in a year

• Using 90 days in a year

What is the total interest accrued by December 31st for the 90-day note starting on November 1st?

• $500

• $250

• $1,000

• $750