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QuestionOn April 1, 2024, Oakland Corp lends \$490,000 at 10% for 12 months. Record the loan, interest adjustment, and cash collection.

Studdy Solution

STEP 1

Assumptions1. The loan amount is $490,000. The interest rate is10%
3. The time for repayment is12 months4. The interest is calculated as a one-time payment, not monthly compounding5. The loan is given on April1,2024 and is due on April1,2025

STEP 2

First, we need to record the loan transaction. This is a simple debit and credit entry in the books of Oakland Corporation.DebitNotes Receivable $490,000Debit Notes\, Receivable\, \$490,000CreditCash $490,000Credit Cash\, \$490,000

STEP 3

Next, we need to calculate the interest that will accrue by the end of the year (December31,202). We can do this by multiplying the loan amount by the interest rate.
Interest=Loan amounttimesInterest rateInterest = Loan\, amount \\times Interest\, rate

STEP 4

Now, plug in the given values for the loan amount and interest rate to calculate the interest.
Interest=$490,000times10%Interest = \$490,000 \\times10\%

STEP 5

Convert the percentage to a decimal value.
10%=0.110\% =0.1Interest=$490,000times0.1Interest = \$490,000 \\times0.1

STEP 6

Calculate the interest amount.
Interest=$490,000times0.1=$49,000Interest = \$490,000 \\times0.1 = \$49,000

STEP 7

Now that we have the interest amount, we can record the adjusting entry for accrued interest on December31,2024. This is again a simple debit and credit entry.
DebitInterest Receivable $49,000Debit Interest\, Receivable\, \$49,000CreditInterest Revenue $49,000Credit Interest\, Revenue\, \$49,000

STEP 8

Finally, on April1,2025, Oakland Corporation collects the note and the interest. The total amount collected is the sum of the loan amount and the interest.
Total amount=Loan amount+InterestTotal\, amount = Loan\, amount + Interest

STEP 9

Plug in the values for the loan amount and the interest to calculate the total amount.
Total amount=$490,000+$49,000Total\, amount = \$490,000 + \$49,000

STEP 10

Calculate the total amount collected.
Total amount=$490,000+$49,000=$539,000Total\, amount = \$490,000 + \$49,000 = \$539,000

STEP 11

Now, we can record the cash collection of the note and interest. This is again a simple debit and credit entry.
DebitCash $539,000Debit Cash\, \$539,000CreditNotes Receivable $490,000Credit Notes\, Receivable\, \$490,000CreditInterest Receivable $49,000Credit Interest\, Receivable\, \$49,000Oakland Corporation collects a total of $539,000 on April,2025.

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