Question

Exercise 7-11A Accounting for notes receivable LO 7-5Rainey Enterprises loaned $50,000 to Small Co. on June 1, Year 1, for one year at 7 percent interest. Requireda. 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

Notes receivable:

Dr Notes receivable $50,000

Cr Cash $50,000

December Year 1:

Dr interest receivable $1,750

Cr Interest revenue $1750

June 1 Year 2:

Dr interest receivable $1,750

Cr Interest revenue $1750

The collection of cash from Small co:

Dr cash ($50,000+$1750+$1750) $53,500

Cr Interest receivable($1750+$1750) $3,500

Cr Notes receivable $50,000

Step-by-step explanation:

Upon the lending of $50,000 to Small Co,the cash account is credited with $50,000 since it is an outflow of cash and the notes receivable account debited with the same amount.

However,at year end year 1, interest is due on the notes receivable,which is computed thus:

interest receivable December Year 1=$50,000*7%*6/12=$1,750

The interest due on 31st December year 1 would be debited to interest receivable and credited interest revenue.

Interest due on 1 june year 2=$50,000*7%*6/12=$1,750