Question

Midshipmen Company borrows $12,500 from Falcon Company on July 1, 2021. Midshipmen repays the amount borrowed and pays interest of 12% (1%/month) on June 30, 2022. Required: 1.&2. Record the necessary entries in the Journal Entry Worksheet below. 3. Calculate the 2021 year-end adjusted balances of Interest Receivable and Interest Revenue (assuming the balance of Interest Receivable at the beginning of the year is $0).

Answer 1

Journal Entries in Books of Falcon Company: Journal Entries Date Account Title and Explaination Post. Ref. Debit $ Credit $ 2021 Jul.1 $ 12,500.00 Notes Receivable Cash (To record loan given to Midshipmen Company) $ 12,500.00 $ 750.00 $ 750.00 $ 14,000.00 Dec.31 Interest Receivable ($12500 x 12% x 6/12) Interest Revenue (To record earned interest revenue) 2022 Jun.30 Cash Notes Receivable Interest Receivable Interest Revenue ($12500 x 12% x 6/12) (To record collection of loan along with accrued interest ) ச ச ச 12,500.00 750.00 750.00

Journal Entries in Books of Midshipmen Company: Journal Entries Date Account Title and Explaination Post. Ref. Debit $ Credit $ 2021 Jul. 1 $ 12,500.00 Cash Notes Payable (To record loan from Falcon Company) $ 12,500.00 $ 750.00 $ 750.00 Dec.31 Interest Expense ($12500 x 12% x 6/12) Interest Payable (To record accrued interest expense) 2022 Notes Receivable Interest Receivable Interest Revenue ($12500 x 12% x 6/12) Cash (To record payment of loan along with interest) $ $ $ 12,500.00 750.00 750.00 $ 14,000.00

Answer to Requirement 3: Calculation of 2021 Year End adjusted balances of Interest Receivable and Interest Revenue: Amount of Loan given Rate of Interest $ 12,500.00 12% Per Annum Accrued Interest Revenue = From Jul.1 to Dec.31 = 6 Months Interest Revenue accrued = $12,500 x 12% x 6months/12months = $ 750.00 So, adjusted balance of Interest Receivable for the Year ended Dec.31, 2021 is $750. adjusted balance of Interest Revenue for the Year ended Dec.31, 2021 is $750.