33. Yang Company lends Dobbs Industries $40,000 on August 1, 2017, acepting a 9-

Question

33. Yang Company lends Dobbs Industries $40,000 on August 1, 2017, acepting a 9-month note (a) What is the total amount of interest that Dobbs will owe to Yang Company? (b) When Yang prepares its financial statements on December 31, 2017, what adjusting journal entry wil it need to make? Assume no interests accruals have been recorded since August 1, 2017. (c) What entry will Yang make to record the collection of the note and interest at its maturity date? Assume no adjusting entries have been made since December 31, 2017.

Explanation / Answer

a) Total amount of interest = 40000*12%*9/12 = 3600

Journal entry

Date accounts & explanation debit credit Dec 31,2017 Interest receivable (3600*5/9) 2000      Interest revenue 2000 (To record accured interest) May 1,2018 Cash 43600      Notes receivable 40000      Interest receivable 2000       Interest revenue 1600 (To record collection of note)

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