Question

Revise your calculations based the new information provided below and then answer the questions that follow.

A company lends $372,000 to an owner and accepts a three year, 7% note in return. The note was issued on June 1st of the current year, and will be due on June 1st of the final year of the note.

Required:
(a) Prepare the journal entry to be made when the company makes the loan and accepts the note in return. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

• Record the 7% note receivable accepted for a loan amount of $372,000.

(b) Calculate the interest revenue to be recorded at the end of each year the note is outstanding.

	Interest revenue December 31, Year 1 December 31, Year 2 December 31, Year 3 June 1, Year 4

(c) Prepare the journal entries to accrue the interest receivable for each year the note is outstanding. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)
Dec 31

• Record the interest receivable during the period ending December 31 for year 1.
• Record the interest receivable during the period ending December 31 for Year 2.
• Record the interest receivable during the period ending December 31 for Year 3.

(d) Prepare the journal entry to record receiving the cash at the note's maturity. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)
June 01

• Record the receipt of cash on account of 7% note receivable.

Answer 1

	Date	Account titles and explanation	Debit	Credit
(a)	01-Jun	Note receivable	$372,000
		Cash		$372,000
		(7% note receivable accepted)
(b)	Date
	Dec 31, Yr1	$15,190	(372000*7/12*7%)
	Dec 31, Yr2	$26,040	(372000*7%)
	Dec 31, Yr3	$26,040	(372000*7%)
	June 1, Yr 4	$10,850	(372000*7%*5/12)
(c )	Dec 31, Yr1	Interest receivable	$15,190
		Interest income		$15,190
	Dec 31, Yr2	Interest receivable	$26,040
		Interest income		$26,040
	Dec 31, Yr3	Interest receivable	$26,040
		Interest income		$26,040
(d)	june 1 yr 4	Cash	$450,120
		Interest receivable		$67,270
		Interest income		$10,850
		Note receivable		$372,000

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