Question

Rainey Enterprises loaned $20,000 to Small Co. on June 1, 2016, for one year at 6 percent interest. Required a. Record these general journal entries for Rainey Enterprises: (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) (1) The loan to Small Co. (2) The adjusting entry at December 31, 2016. (3) The adjusting entry and collection of the note on June 1, 2017.

Answer 1

Answer:

The journal entries are given below.

Explanation:

(1) The loan to Small Co.

Date                     Account Title                     Debit          Credit

June 1, 2016         Notes receivable               20,000

                               Cash                                                    20,000

(2) The adjusting entry at December 31, 2016.

= $20,000 * 6% = $1200

To calculate the interest for seven months = $\frac{1200}{12} * 7$ = $700

Date                     Account Title                     Debit          Credit

Dec 31, 2016       Interest receivable              700

                              Interest revenue                                   700

(3) The adjusting entry and collection of the note on June 1, 2017.

The adjusting entry on June 1, 2017 would be:

= $\frac{1200}{120} *5$ = $500

Date                     Account Title                     Debit          Credit

June 1, 2017        Interest receivable              500

                            Interest revenue                                     500

Collection of the note on June 1, 2017.

Date                     Account Title                     Debit          Credit

June 1, 2017         Cash                                  21,200

                             Notes receivable                                 20,000

                             Interest receivable                                1,200