Question

Rainey Enterprises loaned $45,000 to Small Co. on June 1, Year 1, for one year at 6 percent interest. Required a. Record these general journal entries for Rainey Enterprises: (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your final answers to the nearest whole dollar.) (1) The loan to Small Co. (2) The adjusting entry at December 31, Year 1. (3) The adjusting entry and collection of the note on June 1, Year 2.

Answer 1

Journal entries

Step-by-step explanation:

The journal entries are as follows

On June 1

Note receivable $45,000

To Cash $45,000

(Being the issuance of note receivable is recorded)

On December 31

Interest receivable A/c Dr $1,575

To Interest revenue A/c $1,575

(Being accrued interest is recorded)

The computation of accrued interest is shown below:

= Principal × rate of interest × number of months ÷ (total number of months in a year)

= $45,000 × 6% × (7 months ÷ 12 months)

= $1,575

The 7 months is calculated from June 1 to December 31

On June 1

Interest receivable A/c Dr $1,125

To Interest revenue A/c $1,125

(Being accrued interest is recorded)

The computation of accrued interest is shown below:

= Principal × rate of interest × number of months ÷ (total number of months in a year)

= $45,000 × 6% × (5 months ÷ 12 months)

= $1,125

The 5 months is calculated from January 1 to May 31

On June 1

Cash A/c Dr $47,700

To Note receivable $45,000

To Interest receivable $2,700

(Being the maturity of note receivable is recorded)