METU Bank agrees to lend $125,000 on September 1, 2019, if EMU Co. signs a $125,000,...

METU Bank agrees to lend $125,000 on September 1, 2019, if EMU Co. signs a $125,000, 12%, four-month note maturing on January 1.

Instructions

a) Prepare the entry on September 1^st.

b) Prepare the adjusting entry on December 31^st, assuming monthly adjusting entries have not been made.

c) Prepare the entry required on January 1, 2020, the maturity date.

Expert Solution

Please find below the required answer for above given question:

In the books of METU Bank
Relevant Journal Entries
Date	Description	Debit	Credit
Sep. 1, 2019	12% Note Receivable	$125,000
	EMU Company		$125,000
	[Being an agreement made to lend $125,000 to EMU Company against an acceptance of note receivable @ 12% p.a. by EMU Company which will mature in 4 months on January 1 , 2020]

Sep. 1, 2019	EMU Company	$125,000
	Cash		$125,000
	[Being an amount of $125,000 lended to EMU Company by receiving a note receivable @ 12% p.a. from them which matures in 4 months on January 1 , 2020]

Dec. 31, 2019	Interest Receivable	$5,000
	Interest Income		$5,000
	[Being an adjusted interest income @ 12% p.a. accrued for last 4 months i.e. from Sep'2019 to Dec'2019 on note receivable of $125,000 received from EMU Company]

Jan. 1, 2020	EMU Company	$130,000
	12% Note Receivable		$125,000
	Interest Receivable		$5,000
	[Being 12% note receivable of EMU Company matured on January 1, 2020 along with last 4 months interest receivable on it]

Jan. 1, 2020	Cash	$130,000
	EMU Company		$130,000
	[Being amount received from EMU Company against matured 12% note receivable including interest]

In the books of METU Bank
Relevant Journal Entries
Date	Description	Debit	Credit
Sep. 1, 2019	METU Bank	$125,000
	12% Note Payable		$125,000
	[Being an agreement made to receive $125,000 to METU Bank against an issuance of note payable @ 12% p.a. to METU Bank which will mature in 4 months on January 1 , 2020]

Sep. 1, 2019	Cash	$125,000
	METU Bank		$125,000
	[Being an amount of $125,000 received from METU Bank by issuing them a note payable @ 12% p.a. which matures in 4 months on January 1 , 2020]

Dec. 31, 2019	Interest Expense	$5,000
	Interest Payable		$5,000
	[Being an adjusted interest expense @ 12% p.a. accrued for last 4 months i.e. from Sep'2019 to Dec'2019 on note payable of $125,000 issued to METU Company]

Jan. 1, 2020	12% Note Payable	$125,000
	Interest Payable	$5,000
	METU Bank		$130,000
	[Being 12% note payable of METU Bank matured on January 1, 2020 along with last 4 months interest payable on it]

Jan. 1, 2020	METU Bank	$130,000
	Cash		$130,000
	[Being amount paid to METU Bank against matured 12% note payable including interest]

ekkarill92 answered 2 years ago

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