Final answer:
The question is about recording a loan given by Ogneva Corporation to an employee, accounting for the interest, and recording the repayment. The initial lending records the note receivable and cash entries, the adjusting entry records accrued interest, and the final collection records the cash received along with the interest income.
Step-by-step explanation:
The subject of this question is an accounting practice related to notes receivable and interest. On October 1, 2024, Ogneva Corporation loans $42,200 to an employee and accepts a 12-month note receivable at 8% interest. This is a common scenario in accounting where a company provides a loan and must record the initial transaction, any accrued interest, and eventually the collection of the loan and interest.
To record the lending of $42,200, the company would make the following journal entry:
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- Debit Notes Receivable $42,200
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- Credit Cash $42,200
To record the adjusting entry for the interest at the end of the accounting period (assuming the fiscal year ends on December 31), you would:
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- Calculate accrued interest: ($42,200 x 8% x 3 months/12 months) = $846
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- Debit Interest Receivable $846
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- Credit Interest Income $846
The collection of cash for the note and interest at the maturity date would be recorded as:
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- Calculate total interest for the term: ($42,200 x 8% x 12 months/12 months) = $3,376
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- Debit Cash ($42,200 principal + $3,376 interest) = $45,576
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- Credit Notes Receivable $42,200
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- Credit Interest Income $3,376
This series of entries would reflect an accurate record of the lending transaction, the accrued interest at the end of the year, and the final collection of the note and interest by the company.