CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

LESSON 20-1LESSON 20-1

Promissory Notes

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LESSON 20-1CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

USES OF PROMISSORY NOTESUSES OF PROMISSORY NOTES page 589

1.1. Number1.1. Number

8.8. Maker8.8. Maker 7.7. Maturity date7.7. Maturity date6.6. Interest rate6.6. Interest rate5.5. Principle5.5. Principle

3.3. Payee3.3. Payee

2.2. Date of a note2.2. Date of a note4.4. Time of a note4.4. Time of a note

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LESSON 20-1CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

Interest forOne Year

=Time inYears

×Interest

Rate×Principal

INTEREST ON PROMISSORY NOTESINTEREST ON PROMISSORY NOTES page 590

Interest for One Year

$1,200.00=1×6%×$20,000.00

Interest forFraction of

Year=

Time as Fraction of

Year×

InterestRate

×Principal

Interest for Fraction of Year

$300.00=×6%×$20,000.0090

360

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LESSON 20-1CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

Maturity Value

=Interest+Principal

INTEREST ON PROMISSORY NOTESINTEREST ON PROMISSORY NOTES page 590

Maturity Value

$20,300.00=$300.00+$20,000.00

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LESSON 20-1CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

MATURITY DATE OF PROMISSORY MATURITY DATE OF PROMISSORY NOTESNOTES page 591

May 18, 90-Day NoteMay18–May 31 13 days

June 30 days

July 31 days

August 1–August 16 16 days

Total 90 days

3344

1122

1. Subtract the date of the note from the number of days in the first month.

2. Add 30 days for June.

3. Add 31 days for July.

4. Add only 16 days in August.

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LESSON 20-1CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

TERMS REVIEWTERMS REVIEW

number of a note date of a note payee of a note time of a note principal of a note interest rate of a note maturity date of a note

maker of a note promissory note creditor notes payable interest maturity value

page 592

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

LESSON 20-2LESSON 20-2

Notes Payable

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LESSON 20-1CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

SIGNING A NOTE PAYABLESIGNING A NOTE PAYABLE

1122 33 44 55

page 593

May 18. Signed a 90-day, 6% note, $20,000.00. Receipt No. 345.

1. Write the date.

2. Write the account title.

3. Write the receipt number.

4. Write the principle amount in the General Credit column.

5. Write the same amount in the Cash Debit column.

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LESSON 20-1CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

PAYING PRINCIPLE AND INTEREST ON A PAYING PRINCIPLE AND INTEREST ON A NOTE PAYABLENOTE PAYABLE

11

2233 44

5566

page 594

August 16. Paid cash for the maturity value of the May 18 note: principal, $20,000.00, plus interest, $300.00; total, $20,300.00. Check No. 721.

77

1. Write the date. 6. Write the interest expense amount.2. Write the account title.

7. Write the amount of cash paid.

3. Write the check number.4. Write the note’s principal amount.

5. Write the account title.

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LESSON 20-1CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

SIGNING A NOTE PAYABLE FOR AN SIGNING A NOTE PAYABLE FOR AN EXTENSION OF TIMEEXTENSION OF TIME

11

22

page 595

June 5. Restaurant Supply signed a 90-day, 12% note to Hayport Company for an extension of time on its account payable, $4,000.00. Memorandum No. 66.

2. Credit to Notes Payable

1. Debit to Accounts Payable

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LESSON 20-1CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

PAYING A NOTE PAYABLE ISSUED FOR PAYING A NOTE PAYABLE ISSUED FOR AN EXTENSION OF TIMEAN EXTENSION OF TIME page 596

September 3. Paid cash for the maturity value of the note payable to Hayport Company: principal, $4,000.00, plus interest, $120.00; total, $4,120.00. Check No. 722.

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LESSON 20-1CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

TERMS REVIEWTERMS REVIEW

current liabilities interest expense

page 597

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

LESSON 20-3LESSON 20-3

Notes Receivable

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LESSON 20-1CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

ACCEPTING A NOTE RECEIVABLE FROM ACCEPTING A NOTE RECEIVABLE FROM A CUSTOMERA CUSTOMER

11

22

page 598

April 14. Accepted a 90-day, 8% note from Martin Sterling for an extension of time on his account, $3,000.00. Note Receivable No. 9.

1. Debit to Notes Receivable

2. Credit to Accounts Receivable

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LESSON 20-1CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

COLLECTING PRINCIPAL AND INTEREST COLLECTING PRINCIPAL AND INTEREST ON A NOTE RECEIVABLEON A NOTE RECEIVABLE

11 22 33 44

55 66

page 599

July 13. Received cash for the maturity value of Note Receivable No. 9, a 90-day, 8% note: principal, $3,000.00, plus interest, $60.00; total, $3,060.00. Receipt No. 562.

77

1. Write the date.

2. Write the account title.

5. On the next line, write the account title.

3. Write the receipt number. 6. Calculate and write the interest income amount.4. Write the principal amount.

7. Write the maturity value.

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LESSON 20-1CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

RECORDING A DISHONORED NOTE RECORDING A DISHONORED NOTE RECEIVABLERECEIVABLE

11

2233

page 600

May 6. Jill Davis dishonored Note Receivable No. 12, a 90-day, 8% note, maturity value due today: principal, $600.00; interest, $12.00; total, $612.00. Memorandum No. 92.

1. Debit to Accounts Receivable

2. Credit to Notes Receivable

3. Credit to Interest Income

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LESSON 20-1CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

TERMS REVIEWTERMS REVIEW

notes receivable interest income dishonored note

page 602