Question

Castle National Bank agrees to lend $100,000 on March 1, 2014, to Landscape Co. if Landscape signs a $100,000, 6%, 4-month note.

A. What is the journal entry on March 1, 2014?
B. If Landscape prepares financial statements semi-annually, what is the journal entry on June 30, 2014?
C. What is the journal entry at note maturity?
D. If Landscape prepares financial statements monthly, what is the journal entry on March 31, 2014?

Answer 1

A. On March 1, 2014, Castle National Bank would debit Cash and credit Notes Receivable. B. No journal entry is required on June 30, 2014. C. At note maturity, there would be a debit to Notes Receivable and credits to Interest Revenue and Cash. D. No journal entry is required on March 31, 2014.

Step-by-step explanation:

A. On March 1, 2014, the journal entry for Castle National Bank would be:

Cash: $100,000 (debit)

Notes Receivable: $100,000 (credit)

This entry reflects the loan amount being given to Landscape Co. in the form of cash and the creation of a promissory note which represents the loan receivable.

B. If Landscape prepares financial statements semi-annually, there would be no entry on June 30, 2014. The note has not matured yet, so no adjustments need to be made.

C. At note maturity, the journal entry would be:

Notes Receivable: $100,000 (debit)

Interest Revenue: $2,000 (credit)

Cash: $102,000 (credit)

This entry reflects the cancellation of the promissory note, recognition of interest revenue, and collection of the loan amount.

D. If Landscape prepares financial statements monthly, there would be no entry on March 31, 2014. The note has not matured yet, so no adjustments need to be made.