Question

Nova Corporation hired a new product manager and agreed to provide her a $22,000 relocation loan on a six-month, 5 percent note. a. The company loans the money on January 1. b. The new employee pays Nova the interest owed on the maturity date. c. The new employee pays Nova the full principal owed on the maturity date. Required: Prepare journal entries to record the above transactions for Nova Corporation. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field. Do not round intermediate calculations.) View transaction list Journal entry worksheet 1 2 3 The company loans the money on January 1. Record the transaction. Note: Enter debits before credits. Date General Journal Debit January 01 Credit

Answer 1

Nova Corporation records a relocation loan as a note receivable and cash outflow on January 1. Upon the loan's maturity, interest income is recorded when received, and the loan repayment is recorded with a cash inflow and the removal of the note receivable.

Step-by-step explanation:

When Nova Corporation agrees to provide a $22,000 relocation loan to a new product manager at a 5% interest rate for six months, the journal entry to record the transaction on January 1 is as follows:

January 1

• Debit: Notes Receivable for $22,000
• Credit: Cash for $22,000

This journal entry shows that the company has given cash to the employee and now holds a note receivable, representing the money lent to the employee that is expected to be repaid.

At the end of the six-month period, the employee pays the interest on the loan. The interest can be calculated as:

(Principal x Interest Rate x Time) = ($22,000 x 5% x 0.5 year) = $550

Maturity Date

• Debit: Cash for $550
• Credit: Interest Revenue for $550

This entry records the interest payment received from the employee.

On the same date, the principal is repaid:

• Debit: Cash for $22,000
• Credit: Notes Receivable for $22,000

This entry reflects the repayment of the loan principal amount to the company.