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 $600,000 to its supplier using a 12-month, 11% note.
Required:
Record the following transactions for Shoemaker Corporation.
1. The loan of $600,000 and acceptance of the note receivable on April 1, 2021.
2. The adjustment for accrued interest on December 31, 2021.
3. Cash collection of the note and interest on April 1, 2022.

Answer 1

Answer:

1.

Date                  Account title                                      Debit                    Credit

April 1, 2021      Note receivable                             $600,000

                         Cash                                                                         $600,000

2.

Date                  Account title                                      Debit                    Credit

Dec 31, 2021     Interest receivable                       $49,500

                         Interest revenue                                                          $49,500

Working:

From the date of the loan to December is 9 months so interest must be calculated for these 9 months so that the interest for 2021 is known:

= 600,000 * 11% * 9/12 months

= $49,500

3.

Date                  Account title                                      Debit                    Credit

April 1, 2022     Cash                                                $666,000

                          Interest receivable                                                      $49,500

                          Interest revenue                                                          $16,500

                          Notes receivable                                                      $600,000

Working

Interest revenue:

Calculated on the remaining 3 months of the loan:

= 600,000 * 11% * 3/12 months

= $16,500