Question

On April 1, Year 1, a company realizes that one of its main suppliers is having difficulty meeting delivery schedules, which is hurting the company's business. The supplier explains that it has a temporary lack of funds that is slowing its production cycle. The company agrees to lend $420,000 to its supplier using a 12-month, 12% note.

Required

1. The loan of $600,000 and acceptance of the note receivable on April 1, 2018.

2. The adjustment for accrued interest on December 31, 2018.

3. Cash collection of the note and interest on April 1, 2019.

Answer 1

No Date General Journal Dr. Cr.

1 April 01, 2018 Notes receivable 600,000

Cash 600,000

2 December 31,2018 Interest receivable 54,000

Interest revenue 54,000

3 April 01, 2019 Cash 672,000

Notes receivable 600,000

Interest receivable 54,000

Interest revenue 18,000

Step-by-step explanation:

1. Loan of $600,000 agaisnt a note receivable is recorded as Note receivable to cash.

2.

Interest of 9 months is accrued in 2018.

Interest revenue: $600,000 × 12% × 9/12 = $54,000

3.

Interest of 3 months is accrued in 2018

Interest revenue: $600,000 × 12% × 3/12 = $18,000