12-35 The Nicholson Paving Corporation had the following short-term notes receiv

Question

12-35 The Nicholson Paving Corporation had the following short-term notes receivable out- standing during 2014: Amount Date Issued Date Due Interest Rate 6,000 8,000 0,000 January 1, 2014 May 2. 2014 October 3, 2014 March I, 2014 November 2, 2014 April 3, 2015 8% 6% 4% Nicholson collects all the interest on each note on the maturity date. Required(1) Compute the interest revenue earned by Nicholson Paving Corporation during 2014. For simplicity, compute interest based on the number of months that each note was outstanding (2) Prepare the adjustment (if any) that Nicholson needs to make at the end of 2014

Explanation / Answer

Amount Date Issued Date Due Month due Interest Rate $6,000 January 1, 2014 Mar 1, 2014 2 8%      8,000 May 2, 2014 November 2, 2014 6 6%    10,000 October 3, 2014 April 3, 2015 6 4% 1 Amount Month due in 2014 Interest rate Interest $6,000 2 8% 80                             8,000 6 6% 240 *                           10,000 3 4% 100 420 Total interest revenue of 2014 * since specified in question to calculate interest on no of month, interest on $10,000 note is calculated, otherwise it should be 10000 x 4% x 89 days/360 $98.89 2 Adjustment entry for 2014 needed for $10000 note due in 2015 General Journal Debit Credit Interest receivable 100 Interest revenue 100

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