To answer this question, let us calculate the necessary values.
Since interest given is for a whole year, then:
Interest rate/month = 0.08/12 = 0.0067
Credit interest revenue = Credit notes receivable * Interest rate/month * Duration of maturity in months
Credit interest revenue = $8,500 * 0.0067 * 3
Credit interest revenue = $170
Debit Cash = Credit notes receivable + Credit interest revenue
Debit Cash = $8,670
Therefore the answer is:
Debit Cash $8,670; credit Interest Revenue $170; credit Notes Receivable $8,500.The cash account should be debited with $8,668. 8% notes and interest account should be credited by $8,500 and $168 respectively.
Further Explanation:
Journal entry at the time of maturity:
At the time of the maturity, the face value along with the interest of the bond is payable. So the bondholder will receive the $8,670 at the time of the maturity.
Cash account will be debited by $8,668, and 8% notes account should be credited by $8,500 and interest account should be credited by $168.
Working note 1:
Calculate the notes receivables at the time of maturity:
[tex]\begin{aligned}\text{Notes payable}&=\text{Principle value}+\text{Interest}\\ &=\$8,500+\$168\\&=\$8,668\end{aligned}[/tex]
Working note 2:
Calculate the interest value:
[tex]\begin{aligned}\text{Interest value}&=\text{Principle}\times\text{Interest rate}\times \frac{90}{365}\\ &=\$8,500\times8\%\times\frac{90}{365}\\ &=\$168\end{aligned}[/tex]
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Answer details:
Grade: Senior School
Subject: Accounting
Chapter: Journal Entries
Keywords: Interest, principle, bond-holder, due date, issue date, revenue, cash, maturity date, payment, 90-day, note, notes payable, debit, credit, debentures, journal entry, debit, credit, balance, receivables.
Journal entry at the time of maturity:
