Question

The following transactions took place for Smart Solutions Inc. 2017 a. July 1 Loaned $71,000 to an employee of the company and received back a one-year, 9 percent note. b. Dec. 31 Accrued interest on the note. 2018 c. July 1 Received interest on the note. (No interest has been recorded since December 31.) d. July 1 Received principal on the note. Required: Prepare the journal entries that Smart Solutions Inc. would record for the above transactions.

Answer 1

Jul 1, 2017

Dr Notes receivable $71,000

Cr Cash $71,000

Dec 31, 2017

Dr Interest receivable $3,197

Cr Interest revenue $3,197

Jul 1, 2018

Dr Cash $6,390

Cr Interest receivable $3,197

Cr Interest revenue $3,197

Jul 1, 2018

Dr Cash $71,000

Cr Notes receivable $71,000

Step-by-step explanation:

Preparation of the journal entries that Smart Solutions Inc. would record

Jul 1, 2017

Dr Notes receivable $71,000

Cr Cash $71,000

(Being To record given loan to employee and receipt a note)

Dec 31, 2017

Dr Interest receivable $3,197

(71000*9%*6/12)

Cr Interest revenue $3,197

(Being To record interest accrued)

Jul 1, 2018

Dr Cash $6,390

(3197+3197)

Cr Interest receivable $3,197

Cr Interest revenue $3,197

(71000*9%*6/12)

(Being To record receipt of the interest on maturity date)

Jul 1, 2018

Dr Cash $71,000

Cr Notes receivable $71,000

(Being To record receipt of the full principal)