Question

on october 1, 2026, jewelry savers company accepted a 4 - month, 9% note for $1,200 in settlement of an overdue account receivable. interest revenue was accrued through december 31, 2020. jewelry savers receives the maturity value of the note at maturity. the journal entry to record the collection would be
a. cash 1,236
note receivable 1,200
interest receivable 27
interest revenue 9
b. cash 1,200
interest revenue 36
notes receivable 1,236
c. cash 1,236
note receivable 1,200
interest revenue 36
d. cash 1,236
note receivable 1,200
interest receivable 9
interest revenue 27

Explanation:

Step1: Calculate total interest

The formula for simple - interest is $I = P\times r\times t$, where $P=\$1200$, $r = 9\%=0.09$, and $t = 4/12$ years.
$I=1200\times0.09\times\frac{4}{12}=\$36$

Step2: Calculate interest accrued in 2020 (October - December, $t = 3/12$ years)

Using $I = P\times r\times t$, with $P = 1200$, $r=0.09$, $t = 3/12$
$I_{2020}=1200\times0.09\times\frac{3}{12}=\$27$ (Interest Receivable)

Step3: Calculate interest revenue in 2021 (January, $t = 1/12$ years)

Using $I = P\times r\times t$, with $P = 1200$, $r = 0.09$, $t=1/12$
$I_{2021}=1200\times0.09\times\frac{1}{12}=\$9$ (Interest Revenue)

Step4: Analyze the journal - entry

When the note matures, Cash received is the principal ($P = 1200$) plus total interest ($I = 36$), so Cash $=1200 + 36=\$1236$. Note Receivable (principal amount) is credited for $\$1200$. Interest Receivable (accrued in 2020) is $27$, and Interest Revenue (earned in 2021) is $9$.

Answer:

A. Cash 1,236; Note Receivable 1,200; Interest Receivable 27; Interest Revenue 9