Essay
Assume that on December 13,2017,Royal Company sells a computer to Savco Corp.at an invoice price of $25,000.Because Savco is short of cash,it gives Royal a 90-day,12% promissory note.(Assume a 360-day year for interest calculations. )
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Required
1)What is the total amount of interest that will be due on the maturity date?
2)What adjustments will Royal make to record receipt of the note?
3)If Royal has a December 31 year-end,what adjusting journal entry is needed to record interest due but not yet received?
4)How much interest will Royal earn in 2017?
5)On what day will the note mature?
6)What adjustments will Royal record on the maturity date?
Correct Answer:
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1)$25,000 × 0.12 × 90/360 = $750
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