Question

On April 1, 2021, Shoemaker Corporation realizes that one of its main suppliers is having difficulty meeting delivery schedules, which is hurting Shoemaker's business. The supplier explains that it has a temporary lack of funds that is slowing its production cycle. Shoemaker agrees to lend $450,000 to its supplier using a 12-month, 12% note.

Required:

a. The loan of $450,000 and acceptance of the note receivable on April 1, 2021.
b. The adjustment for accrued interest on December 31, 2021.
c. Cash collection of the note and interest on April 1, 2022.

Record the above transactions for Shoemaker Corporation.

Answer 1

Answer: Please find answer in explanation column

Step-by-step explanation:

1.To record loan given

Date Account title and explanation Debit Credit

Apr 1 2021 Notes receivable $450,000

Cash $450,000

2.To record accrued interest

Date Account title and explanation Debit Credit

Dec 31 2021 Interest receivable $40,500

Interest revenue $40,500

Calculation

Interest Revenue = Principal x rate x Time

= $450,000 x 12% x 9/12 ( April- December)

=$40,500

To record cash collection

Date Account title and explanation Debit Credit

Apr 1,2022 Cash $504,000

Notes receivable $450,000

Accrued Interest $54,000

Calculation:

Interest Revenue for January -March 31 =Principal x rate x Time/ Period

=450,000 X 12% X 3/12

=$13,500

Accrued Interest for (April- December of 2021) and (January -March 31 of 2022) =$40,500+$13,500=$54,000