On May 15, Winterz Company received a 90-day, 10 percent note from its customer for $5,000. Which of the following journal entries record the receipt of payment on the due date from the customer? Assume a 360-day year.
A) Debit Accounts Receivable by $5,125; credit Notes Receivable by $5,000, credit Interest Income by $125
B) Debit Cash by $5,125; credit Notes Receivable by $5,000, credit Interest Income by $125
C) Debit Cash by $5,125; credit Notes Receivable by $5,125. No separate entry is required for interest.
D) Debit Cash by $4,875; credit Notes Receivable by $4,875. Interest is recorded before maturity.

Question

Quizplus · Accepted Answer

When Winterz Company receives the payment on the due date from the customer, it should debit cash for the total amount received, which includes the principal and interest. Winterz Company should also credit its notes receivable account for the principal amount ($5,000) and credit its interest income account for the interest earned on the note ($125). Therefore, option B is the correct journal entry. Option A is incorrect because it assumes that interest is accrued before maturity. Option C is incorrect because it fails to account for the interest earned on the note. Option D is incorrect because it records interest before maturity, which is not appropriate.

On May 15, Winterz Company Received a 90-Day, 10 Percent