Question

Jasper makes a $39,000, 90 day. 7.0% cash loan to Clayborn Co. Jasper's entry to record the collection of the note and interest at maturity should be: (Use 360 days a year.)

A. Debit Cash $39,682.50; Credit Notes Receivable for $39,000.
B. Debit Notes Payable $39,000; Debit Interest Expense $2,730; Credit Cash $41,730.
C. Debit Cash $39,682.50; Credit Interest Revenue $682.50; Credit Notes Receivable $39,000.
D. Debit Cash $41,730; Credit Interest Revenue $2,730; Credit Notes Receivable $39,000.

Answer 1

The correct journal entry for Jasper's collection of the note and interest at maturity for a $39,000, 90-day, 7.0% cash loan is to debit cash for the total amount received, credit interest revenue for the interest earned, and credit the notes receivable for the principal. Thus, the correct answer is Option C. Debit Cash $39,682.50; Credit Interest Revenue $682.50; Credit Notes Receivable $39,000.

Step-by-step explanation:

Jasper makes a $39,000, 90-day, 7.0% cash loan to Clayborn Co. To calculate the interest on this loan, we use the formula Interest = Principal × Rate × Time, where time is in years. Given the 360-day year basis, the interest earned on the loan over the 90 days would be $39,000 × 7% × (90/360) = $682.50.

At maturity, Jasper collects both the principal and the interest. Therefore, Jasper's journal entry should be Debit Cash $39,682.50; Credit Notes Receivable $39,000; Credit Interest Revenue $682.50. This records the repayment of the loan principal and the interest income earned on the loan.

Thus, the correct answer is Option C. Debit Cash $39,682.50; Credit Interest Revenue $682.50; Credit Notes Receivable $39,000.