Question

On April 1, 2021, Shoemaker Corporation realizes that one of its main suppliers is having difficulty meeting delivery schedules, which is hurting Shoemaker's business. The supplier explains that it has a temporary lack of funds that is slowing its production cycle. Shoemaker agrees to lend $570,000 to its supplier using a 12-month, 11% note.

Required:
Record the following transactions for Shoemaker Corporation
1. The loan of $570,000 and acceptance of the note receivable on April 1, 2021. 2. The adjustment for accrued interest on December 31, 2021.
3. Cash collection of the note and interest on April 1, 2022.

Answer 1

1. Debit Note receivable $570,000

Credit Cash $570,000

2. Debit Interest receivable $47,025

Credit Interest revenue $47,025

3.

Debit Cash $632,700

Credit Note Receivable $570,000

Credit Interest receivable $47,025

Credit Interest revenue $15,675

Step-by-step explanation:

1. The loan of $570,000 and acceptance of the note receivable on April 1, 2021. Shoemaker Corporation makes the entry

Debit Note receivable $570,000

Credit Cash $570,000

2. The amount of interest the company receives a year = $570,000 x 11% = $62,700

On December 31, 2021, following 9 months of acceptance of the note receivable.

The accrual interest = $62,700/12 x 9 = $47,025

The adjustment entry:

Debit Interest receivable $47,025

Credit Interest revenue $47,025

3.

Debit Cash $632,700

Credit Note Receivable $570,000

Credit Interest receivable $47,025

Credit Interest revenue $15,675