On June 1, 2020, BlueSky Company provided services to GreenGrass Company and received a 1-year, 8%,...

On June 1, 2020, BlueSky Company provided services to GreenGrass Company and received a 1-year, 8%, $150,000 note, due May 31, 2021. Interest is payable at maturity. BlueSky records adjusting entries annually at December 31.

a. Compute the total interest on the note. How much interest revenue will be recognized in 2020? In 2021?

b. Record the June 1, 2020, journal entry for BlueSky.

c. Record the December 31, 2020, adjusting journal entry for BlueSky.

d. BlueSky’s 2020 preliminary net income of $100,000 was computed without including any amounts related to the receipt of the note or the 12-31-20 adjusting entry. Determine the correct amount of 2020 net income. Ignore taxes.

e. On BlueSky’s December 31, 2019, balance sheet, retained earnings was reported at $300,000. In 2020, the company paid $40,000 in dividends. What is the December 31, 2020, retained earnings balance?

f. What amount(s) will BlueSky report on the December 31, 2020, balance sheet related to the note? How will these amounts be classified?

e. Record the May 31, 2021, journal entry for BlueSky for the receipt of principal and interest.

Expert Solution

a.
Total Interest = $150000 x 8% = $12000
For 2020 = $12000 x 7/12 = $7000
For 2021 = $12000 x 5/12 = $5000

b. & c.

Date	Account Titles	Debit	Credit
Jun. 1	Notes Receivable	$ 150,000
	Service Revenue		$ 150,000

Dec. 31	Interest Receivable	$ 7,000
	Interest Revenue		$ 7,000

d. Net Income = $100000+150000+7000 = $257000 or $107000

e.
Retained Earnings = $300000+257000-40000 = $517000

f.
Current Asset
Notes Receivable = $150000
Interest Receivable = $7000

g.

Date	Account Titles	Debit	Credit
May. 31	Notes Receivable	$ 162,000
	Notes Receivable		$ 150,000
	Interest Receivable		$ 7,000
	Interest Revenue		$ 5,000

ekkarill92 answered 2 years ago

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