Peach Tree Farm
Peach Tree Farm received a promissory note from a customer on March 1, 2012. The principal amount of the note is $20,000; the terms are 3 months and 9% annual interest.
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Refer to the information for Peach Tree Farm. At the maturity date, the customer pays the amount due for the note and interest. What entry is required on the books of Peach Tree Farm on the maturity date assuming that none of the interest had already been recognized?

Question

Peach Tree Farm 
Peach Tree Farm received a promissory note from a customer on March 1, 2012. The principal amount of the note is $20,000; the terms are 3 months and 9% annual interest.
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Refer to the information for Peach Tree Farm. At the maturity date, the customer pays the amount due for the note and interest. What entry is required on the books of Peach Tree Farm on the maturity date assuming that none of the interest had already been recognized?

Quizplus · Accepted Answer

The maturity value of the note is $20,450, which includes the principal of $20,000 and interest of $450 ($20,000 x 9% x 3/12). The entry records the receipt of cash, recognizes interest revenue, and removes the note receivable from the books.