Question

Chapter 7: Accounting for Receivables Accounting for Notes Receivables. Fornell Private Investigators, Inc., borrows $100,000 from Gibbs, Inc. on August 1, 2018, by signing a one-year note with 6% interest payable upon maturity. 1) How should the note be reported on Gibbs, Inc.'s balance sheet on December 31, 2018? 2) Record the loan on Gibbs' books on August 1, 2018. 3) Record the adjustment to Gibbs' books that is necessary on December 31, 2018. 4) Record the payment of the loan on Gibbs' books on July 31, 2019.

Answer 1

1.

Balance sheet (Partial)

Assets
Current assets
Note receivable	100,000
Interest receivable	2,500

2.

Journal

Date	Account Title and Explanation	Debit	Credit
Aug 1, 2018	Note receivable	100,000
	Cash		100,000
	(To record amount loaned)

3.

Journal

Date	Account Title and Explanation	Debit	Credit
Dec 31, 2018	Interest receivable	2,500
	Interest revenue		2,500
	(To record interest revenue)

4.

Journal

Date	Account Title and Explanation	Debit	Credit
July 31, 2019	Cash	106,000
	Note receivable		100,000
	Interest receivable		2,500
	Interest revenue		3,500
	(To record amount received on maturity of note)

Interest revenue to be received on Dec 31, 2018 = 100,000 x 6% x 5/12

= $2,500

Interest revenue to be received on July 31, 2019 = 100,000 x 6% x 7/12

= $3,500

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