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5 June, 08:23

On August 1, 2021, Trico Technologies, an aeronautic electronics company, borrows $20.6 million cash to expand operations. The loan is made by FirstBanc Corp. under a short-term line of credit arrangement. Trico signs a six-month, 6% promissory note. Interest is payable at maturity. FirstBanc Corp.'s year-end is December 31.

Required:

1. Record the issuance of note.

2. Record the adjustment for interest.

3. Record the repayment of the note at maturity.

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  1. 5 June, 11:08
    0
    1.

    Aug 1st, 2021; Entry to record note issuance is as followed:

    Dr Note Receivable $20,600,000

    Cr Cash $20,600,000

    (to record the issuance of note to Trico Technologies)

    2.

    Dec 31st, 2021; Entry to record interest income from note receivable:

    Dr Interest revenue receivable $515,000

    Cr Accrued Interest Income $515,000

    (to record accrued interest income of 5 months; calculated as 20,600,000 x 6% x 5/12 = $515,000)

    3. January 31st, 2022; Entry to record repayment of the note at maturity:

    Dr Cash $21,218,000

    Cr Interest Income $103,000

    Cr Note Receivable $20,600,000

    Cr Interest Income receivable $515,000

    (to record the repayment of the principal and interest income, in which 5 months of interest income had already been recorded in 2021, the other 1 month of interest income $103,000 (20.6 million x 6%/12) is recorded at the end of January which is also maturity time.
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