Answer:
The correct answer is B. Debit Cash 3,018; Credit Notes Receivable 3,000, Credit Interest Revenue 18
Explanation:
The question is incomplete as it only stated the requirement of the question. However, option B above is the closest answer because the company applies the accrual method of accounting, that was why a note receivable was established. The appropriate journals are:
Debit Cash $3,018
Credit Note receivable $3,000
Credit Interest receivable $18
(Recognition of payment of note receivable with interest)
Note receivable is a promissory note with a written promise made by the borrower to the lender (payee) to pay a certain, definite sum at a specified date.
Interest revenue on the notes is calculated as: Principal x Interest Rate x Time
You can use the formula above to arrive at the interest revenue as: $3,000 x Interest rate%/12 x No of months = $18.
Note that the company can accrue for the interest revenue on a monthly basis and not necessarily wait till collection period before recognizing it. Monthly interest revenue recognition would be:
Debit Interest receivable $XXX
Credit Interest revenue $XXX
(Monthly interest revenue recognition on note)
