Part 2: Notes Receivable 5) On August 1, 2017, Aquila Inc. lends $64,000 to Big

Question

Part 2: Notes Receivable 5) On August 1, 2017, Aquila Inc. lends $64,000 to Big Dipper Co. for 6 months. What journal entry does Aquila Inc. record for this transaction? 08/01/2017 6) (Continuation of question 5). The Note Receivable is established with a 3% annual interest rate, and the terms of the note states that the principal and interest will be due and paid on February 1, 2018. What adjusting journal entry is needed to accrue interest revenue earned for 2017 before Big Dipper Co. prepares financial statements on December 31, 2017? 12/31/2017 7) (Continuation of question 5 & 6). On February 1, 2018, Big Dipper Co. pays all principal and interest owed to Aquila Inc. Write the journal entry (from the viewpoint of Aquila Co.) to record the collection. 02/01/2018

Explanation / Answer

Sr. No. Account Title and explanation Debit Credit August 01, 2017 3% Note $                  64,000       To Cash $                     64,000 (To record the Payment of cash through Note) December 31, 2017 Interest Receivable ($ 64,000 X 3 % X 5/12) $                        800         To Interest Revenue $                           800 (To Record the interest receivable from 3% note) February 01, 2018 Cash $                  64,960          To 3% Note $                     64,000          To interest Receivable $                           800         To Interest Revenue $                           160 (To Record the receipt against note receivable and interest)

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