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 $420,000 to its supplier using a 12-month, 12% note.

Required:
1. The loan of $420,000 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. April 01, 2021

Dr Notes receivable 420,000

Cr Cash 420,000

2. December 31,2021

Dr Interest receivable 37,800

Cr Interest revenue 37,800

3. April 01, 2022

Dr Cash 470,400

Cr Notes receivable 420,000

Cr Interest receivable 37,800

Cr Interest revenue 12,600

Step-by-step explanation:

Preparation of the Journal entries Shoemaker Corporation

1. Preparation of the Journal entry for loan o amount of $420,000 as well as the acceptance of the note receivable on April 1, 2021

April 01, 2021

Dr Notes receivable 420,000

Cr Cash 420,000

2. Preparation of the Journal entry for the adjustment for accrued interest on December 31, 2021

December 31,2021

Dr Interest receivable 37,800

Cr Interest revenue 37,800

($420,000 × 12% × 9/12=$37,800)

3. Preparation of the Journal entry for the Cash collection of the note and interest on April 1, 2022

April 01, 2022

Dr Cash 470,400

Cr Notes receivable 420,000

Cr Interest receivable 37,800

Cr Interest revenue 12,600

($420,000 × 12% × 3/12=$12,600)