Accent Flooring
The company received a promissory note from a customer on March 1, Year 1. The principal amount of the note is $20,000; the terms are three months and 9% annual interest.
-Refer to the information in the figure Accent Flooring.At the maturity date,the customer pays the amount due for the note and interest.What entry is required on the books of Accent Flooring on the maturity date,assuming that none of the interest had already been recognized?

Question

Quizplus · Accepted Answer

On the maturity date, Accent Flooring will receive the principal amount of the note ($20,000) as well as the interest accrued during the three-month term. The interest accrued can be calculated as follows:

Interest = Principal x Interest Rate x Time 
Interest = $20,000 x 0.09 x (3/12) 
Interest = $450

Therefore, the entry required on the books of Accent Flooring on the maturity date is to increase cash by $20,450 (principal + interest), increase interest revenue by $450 (to recognize the interest earned), and decrease notes receivable by $20,000 (to show the note has been paid off). Choice B correctly reflects these accounts and amounts.

Accent Flooring the Company Received a Promissory Note from a Customer on Customer