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12 April, 12:23

Rainey Enterprises loaned $45,000 to Small Co. on June 1, Year 1, 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. Round your final answers to the nearest whole dollar.) (1) The loan to Small Co. (2) The adjusting entry at December 31, Year 1. (3) The adjusting entry and collection of the note on June 1, Year 2.

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  1. 12 April, 13:34
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    Journal entries

    Explanation:

    The journal entries are as follows

    On June 1

    Note receivable $45,000

    To Cash $45,000

    (Being the issuance of note receivable is recorded)

    On December 31

    Interest receivable A/c Dr $1,575

    To Interest revenue A/c $1,575

    (Being accrued interest is recorded)

    The computation of accrued interest is shown below:

    = Principal * rate of interest * number of months : (total number of months in a year)

    = $45,000 * 6% * (7 months : 12 months)

    = $1,575

    The 7 months is calculated from June 1 to December 31

    On June 1

    Interest receivable A/c Dr $1,125

    To Interest revenue A/c $1,125

    (Being accrued interest is recorded)

    The computation of accrued interest is shown below:

    = Principal * rate of interest * number of months : (total number of months in a year)

    = $45,000 * 6% * (5 months : 12 months)

    = $1,125

    The 5 months is calculated from January 1 to May 31

    On June 1

    Cash A/c Dr $47,700

    To Note receivable $45,000

    To Interest receivable $2,700

    (Being the maturity of note receivable is recorded)
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