Megan Farms received a promissory note from a customer on March 1,2014.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 Megan Farms on the maturity date assuming none of the interest had already been recognized?

Question

Quizplus · Accepted Answer

At maturity date, Megan Farms will receive the face amount of $8,000 and the interest of 9% for 90 days. The interest can be calculated as follows:

Interest = Face amount x Interest rate x Time 
Time = 90 days / 360 days (a year) = 0.25

Interest = $8,000 x 9% x 0.25 = $180

Therefore, the entry required on the books of Megan Farms at maturity date is:

Increase Cash, $8,000 
Increase Interest Revenue, $180 
Decrease Notes Receivable, $8,000

Option A is incorrect because it only recognizes the payment of the face amount and does not account for the interest earned.

Option C is incorrect because the interest calculated is incorrect.

Option D is incorrect because the question states that Megan Farms received the promissory note from the customer, not the bank.

Megan Farms Received a Promissory Note from a Customer on March