Question

Elburn Supply Co. has the following transactions related to notes receivable during the last 2 months of 2015. The company does not make entries to accrue interest except at December 31.
Nov. 1 Loaned $30,000 cash to Manny Lopez on a 12-month, 10% note.

Dec. 11 Sold goods to Ralph Kremer, Inc., receiving a $6,750, 90-day, 8% note.

16 Received a $4,000, 180 day, 9% note in exchange for Joe Fernetti’s outstanding accounts receivable.

31 Accrued interest revenue on all notes receivable.

Journalize the transactions for Elburn Supply Co. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Use 360 days for calculation. Round answers to 0 decimal places, e.g. 5,275.)

Date

Account Titles and Explanation

Debit

Credit

Nov 1st



Dec 11th



Dec 16th

Dec 31st

Record the collection of the Lopez note at its maturity in 2016. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Use 360 days for calculation.)

Date

Account Titles and Explanation

Debit

Credit

Nov 1st

Answer 1

Answer:

Transaction in 2015:

Nov 1 2015

Dr Loan Receivable               30,000

 Cr Cash                                  30,000

( to record loan to Manny Lopez)

Dec 11 2015

Dr Account Receivable          6,750

Cr Sales                                  6,750

(to record sales on account to Ralph Kremer)

16 Dec 2015

Dr Note Receivable                     4,000

Cr Account Receivable               4,000

(to record note receipt in exchange for receivable from Joe Fernetti)

31 Dec 2015

Dr Interest Receivable                 553

Cr Interest Income                       553

The collection of the Lopez note at its maturity in 2016:

Nov 1 2016:

Dr Cash                                 33,042

Cr Interest Receivable        508  

Cr Loan Receivable             30,000

Cr Interest income               2,534

( to record collection of loan from Lopez)  

Explanation:

Transaction in 2015:

Nov 1: Cash loan is made so Cash decrease (Cr) and Loan Receivable increase (Dr)

Dec 11: Sales on account so Account receivable increases (Dr) and Sales increases (Cr)

Dec 16: Note is received in exchange of receivable, so Note receivable increases (Dr) and Receivable decreases (Cr)

Dec 31: Total interest income accrued on loan/receivables is recorded as Dr Interest receivable ( increase) and Cr Interest income (increase) and  is calculated as:

Loan to Lopez + Receivable from Ralph + Receivable from Joe = 30,000 x 10% x 61/360 + 6,750 x 8% x 20/360 + 4,000 x 9% x 15/360 = 553.

The collection of the Lopez note at its maturity in 2016:

Total cash receipt = Principal + interest expenses = 30,000 + 30,000 x 10% x 365/360 = $33,042 and is recorded as Dr.

Interest income recorded in Interest receivable account in 2015 should be clear (Cr) at the amount of 30,000 x 10% x 61/360 = 501.

Another interest income earned in the year of 2016, calculated as 30,000 x 10% x (365-61)/360 = 2,534 is recorded ( Cr);

Loan receivable is cleared (Cr) at the principal amount of $30,000.