On December 1, Daw Company accepts a $14,000, 45-day, 6% note from a customer.(1) Prepare the year-end adjusting entry to record accrued interest revenue on December 31.(2) Prepare the entry required on the note's maturity date assuming it is honored.Note: Use 360 days a year.

To handle the problem with Daw Company, we need to calculate interest and create the necessary journal entries for both the year-end adjustment and the note's maturity. The interest will be calculated using the formula:

\[
\text{Interest} = \text{Principal} \times \text{Rate} \times \frac{\text{Time}}{360}
\]

### Step 1: Prepare the year-end adjusting entry (December 31)

- **Principal (P):** $14,000
- **Annual Interest Rate (R):** 6% or 0.06
- **Time (T):** From December 1 to December 31 is 30 days.
  
\[
\text{Interest for 30 days} = 14,000 \times 0.06 \times \frac{30}{360}
\]
\[
\text{Interest} = 14,000 \times 0.06 \times \frac{30}{360} = 70
\]

The adjusting entry on December 31 will record $70 of accrued interest revenue.

**Journal Entry on December 31:**

| Date          | Account                 | Debit | Credit |
|---------------|-------------------------|--------|--------|
| December 31   | Interest Receivable      | 70     |        |
|               | Interest Revenue         |        | 70     |

---

### Step 2: Prepare the entry required on the note's maturity date (January 15)

The note matures 45 days after December 1, which would be January 15. At maturity, the total interest for 45 days needs to be recorded and the note paid off.

- **Interest for 45 days:**
  
\[
\text{Interest for 45 days} = 14,000 \times 0.06 \times \frac{45}{360}
\]
\[
\text{Interest} = 14,000 \times 0.06 \times \frac{45}{360} = 105
\]

Since we already recorded $70 on December 31, the remaining interest for January (15 days) is:

\[
105 - 70 = 35
\]

**Journal Entry on January 15:**

| Date          | Account                 | Debit  | Credit |
|---------------|-------------------------|--------|--------|
| January 15    | Cash                     | 14,105 |        |
|               | Notes Receivable         |        | 14,000 |
|               | Interest Receivable      |        | 70     |
|               | Interest Revenue         |        | 35     |

---

### Summary of Steps:

1. On **December 31**, record $70 of accrued interest revenue.
2. On **January 15**, record the receipt of $14,105, clear the note, and record the additional interest revenue of $35.

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Would you like more details on any of the steps?

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Here are 5 related questions to expand on this topic:

1. How would the adjusting entry change if the interest rate were 8% instead of 6%?
2. What would happen if the note were not honored on the maturity date?
3. How does using a 360-day year affect interest calculations compared to using a 365-day year?
4. What is the accounting treatment if the customer defaults on the note?
5. How would you record a partial payment on the maturity date?

**Tip:** Accrued interest should be recorded at the end of every accounting period to ensure financial statements reflect all earned revenue.

Learn how to prepare journal entries for accrued interest revenue on a $14,000, 6% note accepted by Daw Company. Includes step-by-step calculations of interest using a 360-day year and accounting entries for December 31 and the note's maturity date.

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