Question

On April 1, 2021, Shoemaker Corporation realizes that one of its main suppliers is having difficulty meeting delivery schedules, which is hurting Shoemaker's business. The supplier explains that it has a temporary lack of funds that is slowing its production cycle. Shoemaker agrees to lend $490,000 to its supplier using a 12-month, 10% note.
Required:
The loan of $490,000 and acceptance of the note receivable on April 1, 2021.
The adjustment for accrued interest on December 31, 2021.
Cash collection of the note and interest on April 1, 2022.
Record the above transactions for Shoemaker Corporation. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)
Record the loan of $490,000 and acceptance of the note receivable on April 1, 2021.
Note: Enter debits before credits.
Date General Journal Debit Credit
April 01, 2021
Record the adjusting entry for accrued interest.
Note: Enter debits before credits.
Date General Journal Debit Credit
December 31, 2021
Record the cash collection.
Note: Enter debits before credits.
Date General Journal Debit Credit
April 01, 2022

Answer 1

Answer:

Explanation:

Journal entry is a record of transactions in respective accounts using the debit and entry system. Debit entry represents an inflow and credit entry represents an outflow.

Date      General journal            Debit       Credit  

April 2021   Note receivable      490,000

                    Credit Cash                             490,000

Dec. 31 Interest Receivable       36750

(Year end)

                  Interest revenue                             36,750

                  Cash Collection

April 1 ,2022  Cash                      539,000

              Note receivable                                   490,000

               ( Principal )

             Interest receivable (2021)                      36750

              Interest revenue    (2022)                     12,250

Workings.

Loan note rate = 10%

Issue date = April 1, 2012

( months to the year end )

Interest receivable = 490,000*10%*9/12 = 36,750

January 1, 2022 - March 31 , 2022 (maturity ) =3 months

Interest revenue = 490000*10%*3/12 = 12,250

                 

Answer 2

Answer:

Shoemarket Corporation

Journal Entries:

April 1, 2021:

Debit Notes Receivable $490,000

Credit Cash Account $490,000

To record the issue of notes.

December 31, 2021:

Debit Interest on Notes Receivable $36,750

Credit Interest on Notes $36,750

To accrue interest on notes for the year.

April 1, 2022:

Debit Cash Account $539,000

Credit Notes Receivable $490,000

Credit Interest on Notes Receivable $36,750

Credit Interest on Notes $12,250

To record cash collection of the note and interest.

Explanation:

a) The acceptance of  notes receivable increases the Notes Receivable account and reduces the Cash Account by $490,000.

b) Due to the accrual concept and the matching principle, on December 31, 2021, interest on notes receivable will be accrued.  This is calculated as follows:

Interest for 9 months = $490,000 x 10% x 9/12 = $36,750.

c) On April 1, 2022, when the cash collection of the note and interest is made, the Cash received will total $539,000 ($490,000 + 10% Interest for a year).  This is worked as $490,000 x 10% = $49,000.  But, already interest for 2021 had been accrued.  The difference is now accrued in 2022.

d) The entries required are a debit to the Cash Account $539,000, a credit to Interest on Notes Receivable $36,750, to Interest on Notes $12,250, and Notes Receivable Accounts $490,000 respectively.