On June 3, 2016, Fidelity State Company received a $4,000, 60-day, 12 percent no

Question

On June 3, 2016, Fidelity State Company received a $4,000, 60-day, 12 percent note from Horace Coe, a customer whose account was past due. If Horace Coe dishonored the note receivable discounted by Fidelity State, assuming the bank deducted the maturity value of the dishonored note plus a $50 service charge from Fidelity State’s bank account on the due date of the note. Prepare the entries in general journal form that Fidelity State Company would make.

Cash

Ive got this far but cant figure out the accounts recievble or cash numbers to save my life!

Aug 02, 2016 Notes receivable—Discounted 4,000 Accounts receivable/Horace Coe Notes receivable/Horace Coe 4,000

Cash

Ive got this far but cant figure out the accounts recievble or cash numbers to save my life!

Explanation / Answer

Interest Receivable for 60 days = 4000 * 60 / 365 * 12% = 78.91

On discounting the bill from bank on maturity, the bank will pay the bill value alongwith the interest and deduct a charge of $ 50 for discounting services.

So, the journal Entry would be:

On receipt of Notes

Notes Receivable A/c Dr 4000

To Horace Co A/c                           4000

On discounting of Notes:

Cash A/c                     Dr 4028.91

Bank Charges A/c    Dr         50

To Interest Received 78.91

To Notes Receivable 4000   

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