Question

Roseland Design borrowed $700,000 on a 90-day note from CorpOne Funding Company. CorpOne discounts the note at 8%. (Assume a 360-day year is used for interest calculations.)Required:(a) Journalize Roseland’s entries to record:*a. The issuance of the note.b. The payment of the note at maturity.(b) Journalize CorpOne’s entries to record:*a. The receipt of the note.b. The receipt of the payment of the note at maturity.

Answer 1

(a) Roseland provides a note with terms of $700,000, 90 days, and 8% in exchange for a loan.

$700,000 × 8% x (90/360) Equals $14,000 in interest costs.

Roseland would note the following upon issuance:

Credit Notes Payable offsets Debit Cash by $70,000.

When Roseland repays the face value and interest at maturity: Credit Cash 714,000; debit Notes Payable 700,000; debit Interest Expense 14, 000.

(a) The entries refer to notes receivable and interest revenue in CorpOne's eyes. When the note is issued, CorpOne receives it and lends $700,000. This loan would be reported.

Debit 700,000 in Notes Due; Credit 700,000 in Cash

Following receipt of the payment at maturity, CorpOne will categorise the interest income it has raked in over the previous 90 days as follows:

Debit Cash 714 000, credit Notes Receivable 700 000, and credit Interest income 14,000

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