Unit 4_Part 2 - Journalizing promissory notes transactions_Class Exercise

I. Tolliver: Notes Payable

During 20x1, Tolliver Company borrowed money from Natchez Provincial Bank and Trust on two ocassions.
One June 8, the company borrowed $60,000, giving a 120-day, 5% note and
on September 8, the company borrowed $120,000, giving a 3-month, 7% note.
1. Give entries in general journal form to record issuance of each of these notes.
2. Give entries in general journal form to record issuance of a check to pay each of these notes.

Date Particulars Dr Cr
8-Jun Cash 60,000
Notes Payable 60,000 Face value
5%, 120-day note

8-Sep Cash 120,000 Face value - prt

Notes Payable 120,000 Face value
7%, 3-month note

6-Oct Notes Payable 60,000 Face value

Interest expense 1,000 prt
Cash 61,000 MV = Face + prt
paid note

8-Dec Notes Payable 120,000 Face value

Interest expense 2,100 prt
Cash 122,100 MV = Face + prt
paid note
prt = principal X rate X (term / relevant denominator)
MV = Maturity value

30 days in June Issue date, June 8

June 30 - 8 22 30 - 8
July 31 31 days in July
Aug 31 31 days in August
Sept 30 30 days in September total = 114
Oct 6 120 - 114
120 term of the note

Issue date, Sept 8

Sept 8
Oct 8 1 month
Nov 8 1
Dec 8 1
3
II. Keler: Interest and maturity value

The following notes were received by Keller Company during 20x1:

Note # Date Face Amount Period Interest Rate

21 Jan 5 $ 30,000 3 months 8%
22 June 3 $ 15,000 90 days 10%
23 Sept 28 $ 20,000 3 months 9%

1. Compute the maturity value of each note.

2. Compute the total interest income of these notes.

Note Face Interest Maturity

No. Value Value
21 30,000 600 30,600
22 15,000 375 15,375
23 20,000 450 20,450
1,425
III. Georgia: Notes Receivable
On July 15, 20x1, Georgia Company received the following notes:
- a $10,400, 45-day, 10% note from Sampson, a customer, for service rendered.
- a $20,000, 2-month, 12% note from Griffin, a customer whose account was past due.
On maturity date, Sampson dishonored the note while Griffin paid Georgia Company.
1. Record in the general journal the receipt of the notes.
2. Record in the general journal the dishonor of note by Sampson.
3. Record in the general journal the collection from Griffin.

Date Particulars Dr Cr
15-Jul Notes Receivable - Sampson 10,400 Face value
Service Income 10,400
10%, 45-day note

15-Jul Notes Receivable - Griffin 20,000 Face value

Accounts Receivable - Griffin 20,000
12%, 3-month note

29-Aug Accounts Receivable - Sampson 10,530 MV = Face + prt

Notes Receivable - Sampson 10,400 Face value
Interest Income 130 prt
Sampson dishonored the note

15-Sep Cash 20,400 MV = Face + prt

Notes Receivable - Griffin 20,000 Face value
Interest Income 400 prt
Sampson dishonored the note

31 days in July Receipt date, July 15

July 31 - 15 16 31 - 15
Aug 29 45 - 16
45 term of the note

Receipt date, July 15

Jul 15
Aug 15 1 month
Sept 15 1
2