Final answer:
FirstBanc Corporation would make a journal entry debiting Loans Receivable and crediting Cash for $20,000,000 on the loan issuance date. By year-end, they would debit Interest Receivable and credit Interest Income for the accrued interest. No entry is needed for the loan principal at year-end as it's not yet due.
Step-by-step explanation:
To record the necessary journal entries for FirstBanc Corporation after lending $20.0 million to Trico Technologies, we need to consider two dates; the loan issuance date on August 1, 2024, and the year-end date for FirstBanc Corporation, which is December 31.
- On August 1, 2024, when the loan is issued:
Dr. Loans Receivable $20,000,000
Cr. Cash $20,000,000
This journal entry records the cash provided to Trico Technologies as a promissory note’s principal amount and shows an equal increase in the bank's loans receivable.
- On December 31, 2024, to record the accrued interest:
Dr. Interest Receivable [(20,000,000 * 8% * 5 months) / 12] = $666,667
Cr. Interest Income $666,667
This entry books the interest income that has accrued by year-end but has not yet been received since the interest is payable at maturity of the note, which occurs after a six-month period.
- No journal entry required on December 31 for the principal since it is not due until the note matures.
Additional notes:
Since the loan's full term is six months, but the bank's year-end occurs five months into the loan, interest is calculated only for the five-month period from August 1 to December 31.