Final answer:
On August 1, 2024, the company would record a payment of $21,000, which includes the original $20,000 note receivable and $1,000 in interest revenue.
Step-by-step explanation:
On February 1, 2024, when the company lends cash and accepts a $20,000 note receivable with a 10% interest rate due in six months, it would record the original loan amount as a note receivable on its balance sheet.
On August 1, 2024, the borrower will pay back the principal amount plus the interest accrued over six months. To calculate the total amount the borrower owes, we use the formula for future value:
Future value = Principal amount × (1 + Interest rate)
In this case, the future value is $20,000 × (1 + 0.10 × (6/12)) = $20,000 × (1 + 0.05) = $20,000 × 1.05 = $21,000.
This means the company would record a cash inflow (payment) of $21,000 on August 1, 2024, which includes the original $20,000 principal and $1,000 in interest.
The journal entry would typically involve debiting cash for $21,000 and crediting notes receivable for $20,000 and interest revenue for $1,000.