(Learning Objective 4: Accruing interest receivable and collecting a note receiv

Question

(Learning Objective 4: Accruing interest receivable and collecting a note receivable) On August 31, 2010, Nancy Thompson borrowed $2,000 from Green Interstate Bank. Thompson signed a note payable, promising to pay the bank principal plus interest on August 31, 2011. The interest rate on the note is 10%. The accounting year of Green Interstate Bank ends on June 30, 2011. Journalize Green Interstate Bank's (a) lending money on the note receivable at August 31, 2010, (b) accrual of interest at June 30, 2011, and (c) collection of principal and interest August 31, 2011, the maturity date of the note.

Explanation / Answer

Journal Entries 31st August, 2010 Notes Receivale Dr 2000         To cash 2000 30-Jun-11 Interest Receivable/ Accrued 167 2000*10%*10/12                To Interest 167 31-Aug-11 Cash Dr 2200      To Notes Receivable 2000        To Interest Receivable 167      To Interest 33

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