Answer:
When Boulware State Bank lend money
<em>Note Receivable $6,000 (debit)</em>
<em>Cash $6,000 (credit)</em>
When Interest accrues on the Note Receivable on June 30, 2019.
<em>Note Receivable $600 (debit)</em>
<em>Interest Income $600 (credit)</em>.
When the Interest and Principle are collected on August 31, 2019
<em>Cash $6,720 (debit)</em>
<em>Note Receivable $6,720 (credit)</em>
Explanation:
When Boulware State Bank lending money
Recognize an Asset - Note Receivable and a decrease in the assets of Cash.
<em>Note Receivable $6,000 (debit)</em>
<em>Cash $6,000 (credit)</em>
When Interest accrues on the Note Receivable on June 30, 2019.
Hint :Interest that expires is for 10 months and must be accounted as such.
<em>Note Receivable $600 (debit)</em>
<em>Interest Income $600 (credit)</em>
Interest Income = $6,000 × 12% × 10/12
= $600.
When the Interest and Principle are collected on August 31, 2019
Interest for July and August for 2020 must first be accounted.
Note Receivable $120 (debit)
Interest Income $120 (credit)
Interest Income = $6,000 × 12% × 2/12
= $120.
Thus entry to record collection of principal and interest will be :
<em>Cash $6,720 (debit)</em>
<em>Note Receivable $6,720 (credit)</em>
Note Receivable = Principle + 2019 interest + 2020 interest
= $6,000 + $600 + $120
= $6,720
