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.

Question

Business

Elliot Jackson

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.

+3

Answers (1)

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Nehemiah West · Answer 1

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.