Daw company's december 31 year-end unadjusted trial balance shows a $10,000 balance in notes receivable. this balance is from one 6% note dated december 1, with a period of 45 days. assume daw company does not prepare reversing entries. prepare journal entries for december 31 and for the note's maturity date assuming it is honored. (use 360 days a year.)

Interest on notes receivable is the cost of borrowing money for the borrower or profit from lending money. Interest should be calculated by multiplying principle amount of notes with rate of interest and number of days of interest. Following is the calculation

Interest = Principle amount of notes x Annual rate of interest x days =  10,000 x 0.06 x (30/360) = 50

Since the interest amounts to $50 for the period of 30 days at the rate of 6%, the journal entry for the corresponding transaction is shown below.

On Dec 31, Interest receivable debit is $50. Interest Revenue Credit is $50

Interest receivable account should be debited as it is the asset of D and revenue account needs to be credited as interest income of company should be recognized at income side of profit and loss account which amount to $50.

Maturity date is the date on which notes must be repaid with specified interest for holding period. Generally, maturity period of notes is less than a year means in days. Since notes is issued for 30 days at the interest rate of 6%, computation of the maturity date is shown below.

On Aug 2, Cash Debit is $10,075. Interest receivable Credit is $50. Notes receivable Credit is $10,000. Interest Revenue Credit is $25.

On the date of maturity, cash is received against the note along with the interest due to which cash account needs to be debited by maturity value of $6,180. Notes receivable should be credited by $10,000. Interest is the income for the company and it should be credited underlying the profit and loss account.