Precision Castparts, a manufacturer of processed engine parts in the automotive

Question

Precision Castparts, a manufacturer of processed engine parts in the automotive and airline industries, borrows $40.4 million cash on October 1, 2018, to provide working capital for anticipated expansion. Precision signs a one-year, 9% promissory note to Midwest Bank under a prearranged short-term line of credit. Interest on the note is payable at maturity. Each firm has a December 31 year-end.

Required:

)1. Prepare the journal entries on October 1, 2018, to record the acceptance of the note by Midwest Bank.

2. Record the adjustment for interest for Midwest Bank.on December 31, 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in dollars, not in millions (i.e., $5.5 million should be entered as 5,500,000).)

3. Prepare the journal entries on September 30, 2019, to record the receipt of cash at maturity for Midwest Bank.(If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in dollars, not in millions (i.e., $5.5 million should be entered as 5,500,000).)

Explanation / Answer

Solution:

Journal Enteries - Midwest Bank Date General Journal Debit Credit 1-Oct-18 Notes Receivables Dr $40,400,000.00          To Cash $40,400,000.00 (Being Loan given against promissory note at 9% for 1 year) 31-Dec-18 Interest Receivables Dr ($40,400,000 * 9%*3/12) $909,000.00          To Interest Income $909,000.00 (Being interest accured but not due on note receivables) 30-Sep-19 Interest Receivables Dr ($40,400,000 * 9%*9/12) $2,727,000.00          To Interest Income $2,727,000.00 (Being interest due on note receivables) 30-Sep-19 Cash Dr $44,036,000.00          To Notes Receivables $40,400,000.00          To Interest Receivables $3,636,000.00 (Being cash received with interest on maturity of promissory note)

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