Question

LO 8-3 30 Recording Note Receivable Transactions, Including Accrual Adjustment for Interest The following transactions took place for Smart Solutions Inc. 2014 a. July 1 Loaned $70,000 to an employee of the company and received back a one-year, 10 percent note. b. Dec. 31 Accrued interest on the note. 2015 c. July 1 Received interest on the note. (No interest has been recorded since December 31.) d. July 1 Received principal on the note. Required: Prepare the journal entries that Smart Solutions Inc. would record for the above transactions.

Answer 1

Solution:

2014 Journal Entries:

Date	Account Titles and Explanation	Debit	Credit
July. 1	10% Notes Receivable	$          70,000
	Cash		$                  70,000
	(Being notes receivable received)
Dec.31	Accrued Interest Receivable ($70,000*10%*6/12)	$            3,500
	Interest Revenue		$                     3,500
	(Being accrued interest receivable)

2015 Journal Entries:

Date	Account Titles and Explanation	Debit	Credit
July. 1	Cash ($70,000*10%)	$            7,000
	Interest Revenue ($70,000*10%*6/12)		$                     3,500
	Accrued Interest Receivable		$                     3,500
	( Being interest received)
July. 1	Cash	$          70,000
	10% Notes Receivable		$                  70,000
	( Being notes receivable realized)