Question

On April 1, Year 1, a company realizes that one of its main suppliers is having difficulty meeting delivery schedules, which is hurting the company's business. The supplier explains that it has a temporary lack of funds that is slowing its production cycle. The company agrees to lend $420,000 to its supplier using a 12-month, 12% note.


Required

1. The loan of $600,000 and acceptance of the note receivable on April 1, 2018.

2. The adjustment for accrued interest on December 31, 2018.

3. Cash collection of the note and interest on April 1, 2019.

Answer 1

Answer:

No    Date                        General Journal             Dr.         Cr.

1   April 01, 2018              Notes receivable       600,000

                                        Cash                                         600,000

2   December 31,2018    Interest receivable     54,000

                                        Interest revenue                       54,000

3   April 01, 2019             Cash                           672,000

                                        Notes receivable                      600,000

                                        Interest receivable                   54,000

                                        Interest revenue                       18,000

Explanation:

1. Loan of $600,000 agaisnt a note receivable is recorded as Note receivable to cash.

2.

Interest of 9 months is accrued in 2018.

Interest revenue: $600,000 × 12% × 9/12 = $54,000

3.

Interest of 3 months is accrued in 2018

Interest revenue: $600,000 × 12% × 3/12 = $18,000