Question

Best, Inc. loaned $100,000 for three months on November 1 to one of its customers at the rate of 6%. The principal amount of the loan plus interest is due on the following February 1. Provide a journal entry that will be recorded on December 31?

Answer 1

The journal entry recorded on December 31 for Best, Inc.'s loan would involve two accounts: Notes Receivable and Interest Revenue. The Notes Receivable account would be debited for the principal amount of the loan, and the Interest Revenue account would be credited for the interest earned on the loan.

Step-by-step explanation:

The journal entry recorded on December 31 for Best, Inc.'s loan would involve two accounts: Notes Receivable and Interest Revenue. Here is the journal entry:

1. Debit Notes Receivable account for the principal amount of the loan, which is $100,000.
2. Credit Interest Revenue account for the interest earned on the loan. The interest earned can be calculated using the formula: Principal x Rate x Time.

The interest earned can be determined by calculating the three months interest on the principal amount of the loan ($100,000) at a rate of 6%. This can be calculated as follows: $100,000 x 6% x (3/12) = $1,500.

Therefore, the journal entry recorded on December 31 would be:

• Debit Notes Receivable: $100,000
• Credit Interest Revenue: $1,500