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8 July, 04:34

June 23. Received a $48,000, 90-day, 8% note dated June 23 from Radon Express Co. on account. Sept. 21. The note is dishonored by Radon Express Co. Oct. 21. Received the amount due on the dishonored note plus interest for 30 days at 10% on the total amount charged to Radon Express Co. on September 21.

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  1. 8 July, 06:48
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    Radon Express

    $ 48,000, 90 days, 8% note

    To simplify interest computation a year is commonly treated as having 360 days (called the banker's rule).

    Interest = Principal of the interest * annual Interest rate * time in years

    Interest = $ 48,000 * 8% * 90/360

    Interest = $ 48,000 * 0.08 * 1/4 = $ 960

    The amount due on the dishonored note plus interest = $ 48,000 + 960=

    $ 48,960

    10 % of $ 48,960 = $ 4896

    The entry on 21st oct would be

    Cash $ 53856 Dr.

    Interest Revenue $ 4896 Cr

    Interest Receivable $ 960 Cr

    Notes Receivable $ 48,000 Cr

    The $ 4896 interest earned reflects the Randon's Revenue from holding the note from 21st Sept to 21st Oct.
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