Question

Jasper makes a $45,000, 90-day, 6.5% cash loan to Clayborn Co. Jasper's entry to record the collection of the note and interest at maturity should be: (Use 360 days a year.) Multiple Choice:
a. Debit Notes Payable $45,000; Debit Interest Expense $2,925; credit Cash $47,925.

b. Debit Cash $45,731.25; credit Notes Receivable for $45,731.25.

c. Debit Cash $45,731.25; credit Interest Revenue $731.25; credit Notes Receivable $45,000.

d. Debit Cash $47,925; credit Interest Revenue $2,925, credit Notes Receivable $45,000.

e. Debit Cash for $45,000; credit Notes Receivable $45,000.

Answer 1

Answer:

The entry should be:

c. Debit Cash $45,731.25; credit Interest Revenue $731.25; credit Notes Receivable $45,000

Explanation:

Jasper makes a cash loan to Clayborn Co.. This is a Notes Receivable of Jasper.

The amount of the loan is $45,000

Tern of the loan is 90-day and interest rate is 6.5%

The interest amount Jasper receives on maturity date:

$45,000 x 6.5% x 90/360 = $731.25

The entry should be:

Debit Cash $45,731.25

Credit Interest Revenue $731.25

Credit Notes Receivable $45,000