Genuine Parts received a promissory note from a customer on March 1, 2015.The face amount of the note is $8,000; the terms are 90 days and 9% interest.At the maturity date, the customer pays the amount due for the note and interest.What entry is required on the books of Genuine Parts on the maturity date assuming none of the interest had already been recognized?

Question

Quizplus · Accepted Answer

On the maturity date, Genuine Parts would receive the face amount of the note plus the accrued interest. The accrued interest can be calculated as follows: $8,000 x 9% x (90/360) = $180. Therefore, the entry would be to increase Cash for $8,180 (face amount plus interest), increase Interest Revenue for $180, and decrease Notes Receivable for $8,000. Option A is incorrect because it does not account for the accrued interest. Option C is incorrect because it overstates the amount of cash received as it includes the total interest calculated over the life of the note rather than just the accrued interest at maturity. Option D is incorrect because there is a transaction that occurs on the books of Genuine Parts and therefore an entry is required to reflect it.

Genuine Parts Received a Promissory Note from a Customer on March