Answer:
Journal Entries
Waterway Inc.
October 1
Dr. Cash $1,076,000
Dr. Interest Expense $38,000
Cr. Note payable $1,114,000
Ottawa National Bank
October 1
Dr. Note Receivable $1,114,000
Cr. Interest revenue $38,000
Cr. Cash $1,076,000
Step-by-step explanation:
Interest = $1,900,000 x 2% = $38,000
At the time of assigning the account receivable the finance charges is applicable the interest on the loan note will be recorded when it accrues. Interest expense as finance charges will be added to calculate the Note payable value for Waterway Inc. and Note receivable value for Ottawa National Bank.