Q4TI - Horngren'S Financial And Managerial Accounting

Question

On August 1, Taylor Company lent $80,000 to L. King on a 90-day, 5% note.

12. Journalize for Taylor Company the lending of the money on August 1.

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

Step-by-Step Solution

Answer

(12) Notes receivable- L. King will be debited and cash will be credited by $80,000, respectively. 

(13) Cash account will be debited by $80,986 and Notes Receivable- L. King will be credited by $80,000 and interest revenue will be credited by $986. 

Step 1: Definition of notes receivable

The note is a written contract issued by the borrower to the lender. In this, the borrower promises to pay the money back on some future date.

Step 2: Journal entry for lending the money

Date	Particulars	Debit	Credit
August 1	Notes Receivable- L. King	$80,000
	Cash		$80,000
	(Accepting notes in exchange for cash)

Step 3: Journal entry for the maturity of the bond

Date	Particulars	Debit	Credit
October 30	Cash	$80,986
	Notes Receivable- L. King		$80,000
	Interest Revenue ($80,000 x 5% x 90/365)		$986
	(Collection of notes and interest)