Question

ivanhoe co. has the following transactions related to notes receivable during the last 2 months of the year. the company does not make entries to accrue interest except at december 31. nov. dec. 11 16 31 loaned $61,200 cash to c. bohr on a 12-month, 5% note. sold goods to k. r. pine, inc., receiving a $5,400, 90-day, 6% note. received a $4,800, 180-day, 10% note to settle an open account from a. murdock. accrued interest revenue on all notes receivable.

Answer 1

Interest on notes receivable must be accrued based on the terms of each note. Singleton Bank records a $9 million loan as an asset that generates interest income. Upon deposit by Hank's Auto Supply, First National's reserves increase and must hold 10% as required reserves while the rest is available for lending.

Step-by-step explanation:

Ivanhoe Co. engaged in several transactions related to notes receivable, including the issuance of three different notes. To accrue interest on these notes at the year-end, the company must calculate the interest earned on each note based on their individual principal amounts, interest rates, and the time period the note has been outstanding. For instance, the $61,200 note at 5% interest for 12 months will generate interest income for the entire year, whereas the $5,400 note at 6% for 90 days and the $4,800 note at 10% for 180 days will generate interest for their respective terms.

When Singleton Bank lends $9 million to Hank's Auto Supply, this loan appears as an asset on the bank's balance sheet and generates interest income. Hank's Auto Supply's deposit of the loan funds increases the deposits and reserves of First National by $9 million. First National is then obliged to maintain 10% of these additional deposits as required reserves, while the remaining 90% can be loaned out to other borrowers. This process is an example of how banks create money through the lending process and illustrates the impact of reserve requirements on a bank's ability to lend.

Answer 2

Ivanhoe Co. engaged in various transactions with notes receivable and must account for and accrue interest revenue at year's end, similar to when Singleton Bank grants a loan and records it as an asset due to generating interest income.

Step-by-step explanation:

Accounting for Notes Receivable and Interest Revenue

Ivanhoe Co. had several transactions involving notes receivable. First, they loaned $61,200 to C. Bohr with a 5% interest rate for 12 months on November 11. Then they sold goods to K. R. Pine, Inc. and received a 90-day, 6% note for $5,400 on December 16.

Lastly, a $4,800 note at a 10% interest rate for 180 days was received from A. Murdock to settle an open account on December 31. In their accounting records, Ivanhoe Co. needs to accrue interest revenue on all these notes at the end of the year.

For example, using Singleton Bank's loan to Hank's Auto Supply as a reference for how loans work in banking:

• Singleton Bank issues a cashier's check to Hank's Auto Supply after lending them $9 million.
• Hank deposits the check at First National, increasing both deposits and reserves by $9 million.
• First National is required to maintain 10% of the deposit as reserves but can loan out the rest.

The approach is similar in record keeping for Ivanhoe Co. They will need to account for the notes receivable as assets and the generated interest as revenue on their balance sheet.