Chapter 7: Question BE7-8 (page 363)

Dold Acrobats lent $16,529 to Donaldson, Inc., accepting Donaldson’s 2-year, $20,000, zero-interest-bearing note. The implied interest rate is 10%. Prepare Dold’s journal entries for the initial transaction, recognition of interest each year, and the collection of $20,000 at maturity.

Expert verified

Both sides of the Journal total$43,471.

Step by step solution

The specified date on which the loan due will be paid along with any accrued interest is the maturity date.

Date	Accounts and Explanation	Debit $	Credit $
1	Note receivable	$20,000
	Discount on note receivable		$3,471
	Cash		$16,529

2	Discount on note receivable	$1,653
	Interest revenue $($ 16529 \times 10 %)$		$1,653

3	Discount on note receivable $(($ 16529 + $ 1, 653) \times 10 %)$	$1,818
	Interest revenue		$1,818

4	Cash	$20,000
	Note receivable		$20,000
		$43,471	$43,471

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June 30 Bank Reconciliation Statement
Balance per bank	\(7,000
Add: Deposit in transit	1,540
Less: Outstanding checks	(2,000)
Balance per books	\)6,540

Month of July Results
	Per Bank	Per Books
Balance July 31	\(8,650	\)9,250
July Deposits	5,000	5,810
July Checks	4,000	3,100
July note collected (not included in July deposits)	1,000	-
July bank service charge	15	-
July NSF check from a customer, returned by the bank (recorded by bank as a charge)	335	-

Cash in bank – saving account	68,000	Checking account balance	17,000
Cash on hand	9,300	Post-dated Checks	750
Cash refunded due from IRS	31,400	Certificate of deposits (180-days)	90,000