Question:
Selkirk Company obtained a $15,000 note receivable from a customer on January 1, 2013. The note,
along with interest at 10%, is due on July 1, 2013. On February 28, 2013, Selkirk discounted the note at
Unionville Bank.
The bank’s discount rate is 12%.
Required:
Prepare the journal entries required on February 28, 2013, to accrue interest and to record the discounting
(round all calculations to the nearest dollar) for Selkirk. Assume that the discounting is accounted for as a
sale.
Answer:
Step 1: Accrue interest earned.
February 28, 2013
Interest receivable.................................................................................. 250
Interest revenue ($15,000 x 10% x 2/12).......................................... 250
Step 2: Add interest to maturity to calculate maturity value.
Step 3: Deduct discount to calculate cash proceeds.
$15,000 Face amount
750 Interest to maturity ($15,000 x 10% x 6/12)
Selkirk Company obtained a $15,000 note receivable from a customer on January 1, 2013. The note,
along with interest at 10%, is due on July 1, 2013. On February 28, 2013, Selkirk discounted the note at
Unionville Bank.
The bank’s discount rate is 12%.
Required:
Prepare the journal entries required on February 28, 2013, to accrue interest and to record the discounting
(round all calculations to the nearest dollar) for Selkirk. Assume that the discounting is accounted for as a
sale.
Answer:
Step 1: Accrue interest earned.
February 28, 2013
Interest receivable.................................................................................. 250
Interest revenue ($15,000 x 10% x 2/12).......................................... 250
Step 2: Add interest to maturity to calculate maturity value.
Step 3: Deduct discount to calculate cash proceeds.
$15,000 Face amount
750 Interest to maturity ($15,000 x 10% x 6/12)
