Question

Rainey Enterprises loaned $35,000 to Small Co, on June 1, 2018, for one year at 6 percent interest. Required Show the effects of the following transactions in a horizontal statements. In the Cash Flow column, indicate whether the item is an operating activity (OA), an investing activity (IA), or a financing activity (FA). For any element not affected by the event, leave the cell blank. (Not every cell will require entry. Do not round Intermediate calculations. Enter any decreases to account balances and cash outflows with a minus sign.) (1) The loan to Small Co. (2) The adjusting entry at December 31, 2018 (3) The adjusting entry and collection of the note on June 1, 2019. Date RAINEY ENTERPRISES Horizontal Statements Model = Equity Income Statement - Statement of Cash Interest Retained Revenue - Receivable Flow Earnings Expense - Net Income Cash Assets Notes Receivable + 1. 6/1/18 2. 12/31/18 3.6/1/19 6/1/19 1 of 1 i Next >

Answer 1

Answer:

Funds advanced to another company on a term longer than an accounts receivable are classified according to the term outstanding. An advance of 1 year or less are classified as a current asset. Assets due greater than one year are classified as a non-current asset with the portion due within the next 12 months classified as a current asset. The following journal entries are representative of recording journal entries and adjusting entries needed at the end of an accounting period.

(1) The loan to Small Co.

Date	Account Title and Explanation	Debit	Credit
June 1, 2018	Note Receivable	$35,000
	Cash		$35,000
	(Record loan to Small Co.)

(2) The adjusting entry at December 31, 2018.

Date	Account Title and Explanation	Debit	Credit
December 31, 2018	Interest Receivable	$1,225
	Interest Income		$1,225
	(Record interest earned but not yet received on loan to Small Co.)

• 35,000 loan x 6% interest x 7 months outstanding / 12 months = $1,225

(3) The adjusting entry and collection of the note on June 1, 2019.

Date	Account Title and Explanation	Debit	Credit
June 1, 2019	Cash	$37,100
	Note Receivable		$35,000
	Interest Receivable		$1,225
	Interest Income		$875
	Record payment of loan and related interest on loan to Small Co.

• 35,000 loan x 6% interest x 5 months outstanding / 12 months = $875

Journal Entry Worksheet

Date	Cash	+	Note Receivable	+	Interest Receivable	=	Retained Earnings		Interest Income		Effect on Cash Flow
6/1/2018	-$35,000		$35,000								IA
12/31/2018					$1,225		$1,225		$1,225		NA
6/1/2019	$37,100		-$35,000		-$1,225		$875		$875		OA / IA

Thank you.