Question

(1) For all three parts, the $100,00 loan is at 6% interest.

(a) If the loan is a six month note beginning on 2/1/18 with repayment on 8/1/18, prepare the entries for 2/1/18 and 8/1/18.

(b-1) If the loan is a six month note beginning on 11/1/18 with repayment on 5/1/19, prepare the entries for 11/1/18, 12/31/18, and 5/1/19.

(b-2) With reference to (b-1), how much interest will be shown on the 2018 and 2019 income statements? Will it be interest revenue or expense?

(c-1) If the loan is a three year note beginning on 1/1/18 with repayment on 1/1/21, prepare the entries for 1/1/18, 12/31/18, 12/31/19, 12/31/20 and 1/1/21.

(c-2) With respect to (c-1), how much interest will be on the income statements in 2018, 2019, 2020, and 2021? Will it be interest revenue or expense?

(2) Calculate the due dates for a note that is made on 2/17 and has the following terms:

(a) 3 months

(b) 90 days

(c) 60 days

(d) 45 days

Answer 1

Please note 6 % interest per annum is taken in to consideration and journal entries are made in the books of Borrower. Interest is paid to lender each month.

1) a) Date 2/1/18

Bank a/c-------------------Debit. 1,00,000

To, Lender's Loan a/c. 1,00,000

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Date : 8/1/2018

Interest expense a/c-------------------Debit 500

To Interest payable a/c. . 500

Lender's Loan a/c-------------------Debit 1,00,000

Interest payable a/c-------------------Debit. 500

To Bank a/c. 1,00,500

1) b-1)

Date 11/1/18

Bank a/c-------------------Debit 1,00,000

To Lender's Loan a/c. 1,00,000

Date : 12/31/2018

Interest expense a/c---------------Debit. 500

To Interest Payable a/c. . 500

Interest payable a/c ---------------Debit 500

To Bank a/c. 500

Date : 5/1/2019

Interest expense a/c------------Debit. 500

To Interest payable a/c. . 500

Lender's Loan a/c ---------------Debit. 1,00,000

Interest payable a/c-------------Debit 500

To Bank a/c. . 1,00,500

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1) b-2) Since we are preparing journal entries in the books of Borrower. It will be an expense to present in the income statement. Each month 500 Interest is payable. 1,00,000×6×6/100×12= 3000 for 6 months

2018 : $ 1000

2019 : $ 2000

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1) c-1) Date : 1/1/2018

Bank a/c -----------------Debit 1,00,000

To Lender's Loan a/c. 1,00,000

Date : 12/31/2018 , 12/31/2019 & 12/31/2020 for each date

Interest expense a/c--------------Debit. 500

Interest payable a/c. 500

Interest payable a/c--------------Debit 500

To Bank a/c. 500

Date : 1/1/2021

Lender's Loan a/c ---------------Debit 1,00,000

To Back a/c. 1,00,000

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1) c-2)

Please note Interest calculated at 6 %p.a. on principal amount 1,00,000

So Interest will be $ 6000 for each year 2018, 2019 and 2020.

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2) Please find below due dates

A) & B) due date is 5/1/2017

C) due date is 4/1/2017

D) due date is 3/23/2017