Q10SE - Horngren'S Financial And Managerial Accounting

Question

Question: On June 6, Lakeland Bank & Trust lent $80,000 to Stephan Stow on a 30-day, 9% note. 

Requirements

1. Journalize for Lakeland the lending of the money on June 6.

2. Journalize the collection of the principal and interest at maturity. Specify the date Round to the nearest dollar

Step-by-Step Solution

Answer

Answer:

(1) Notes receivable – Stephan Stow account is debited and cash account is credited by $80,000, respectively. 

(2) cash account is debited by $80,592, and notes receivable – Stephan Stow is credited by $80,000 and interest revenue by $592.

Step 1: Definition of notes receivable

The notes receivable means the note that is received by the company. The notes receivable are issued by the debtor of the company and the debtor pays interest to the company on the notes.

Step 2: Journal entry of lending money

Date	Account and explanation	Debit	Credit
June 6	Notes receivable – Stephan Stow	$ 80,000
	Cash		$80,000
	(9% notes accepted by the company,)

Step 3: Journal entry of a collection of principal and interest

Date	Account and explanation	Debit	Credit
July 6	Cash	$80,592
	Note Receivable- Stephan Stow		$80,000
	Interest Revenue		$592
	(Collected 9% note receivable with interest.)

Step 4: Computation of interest revenue on maturity

$$\begin{gathered} \mathbf{Interest} \mathbf{Note} \mathbf{=}\mathbf{Principal}\mathbf{\times }\mathbf{Rate}\mathbf{\times }\mathbf{Time} \mathbf{Period} \\ \mathbf{=}\mathbf{\$}\mathbf{80}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{9}\mathbf{\%}\mathbf{\times }\frac{\mathbf{30}}{\mathbf{365}} \\ \mathbf{=}\mathbf{\$}\mathbf{592} \end{gathered}$$