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On August 1, 2024, Trico Technologies, an aeronautic electronics company, borrows $20.0 million cash to expand operations. The loan Is made by FirstBanc Corporation under a short-term line of credit arrangement. Trico signs a six-month, 8% promissory note. Interest is payable at maturity. FirstBanc Corporation's year-end Is December 31.

Required:
1. to 3. Record the necessary entries in the Journal Entry Worksheet below for FirstBanc Corporation. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" In the first account field. Enter your answers in dollars, not millions (l.e. 5.5 million should be entered as 5,500,000).)

User Tzafrir
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2 Answers

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Final answer:

FirstBanc Corporation should record the cash borrowing and interest entries in their journal entry worksheet.

Step-by-step explanation:

FirstBanc Corporation should record the necessary entries in the Journal Entry Worksheet as follows:

  1. On August 1, 2024:
    • Debit: Cash - $20,000,000
    • Credit: Notes Payable - $20,000,000
  2. On December 31, 2024 (maturity date):
    • Debit: Interest Receivable - $666,667
    • Credit: Interest Revenue - $666,667
    • Debit: Notes Payable - $20,000,000
    • Credit: Cash - $20,666,667

User Fyasar
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4 votes

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.

  1. 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.

  1. 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.

  1. 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.

User Shafqat Masood
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8.0k points
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