Pozzi Company, a cash basis business, received $16,930 cash as payment on a loan Pozzi made to a business associate two years ago. The payment consisted of a $15,000 principal payment and $1,930 interest. On receipt of the cash, Pozzi recognizes:

Question

Parker Collins

Business

11 January, 17:10

Pozzi Company, a cash basis business, received $16,930 cash as payment on a loan Pozzi made to a business associate two years ago. The payment consisted of a $15,000 principal payment and $1,930 interest. On receipt of the cash, Pozzi recognizes:

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Hillary Henry · Answer 1

cash 16,930

note receivable 15,000

interest revenue 1, 930

Explanation:

Pozzi works his accounting under cash basis. This means it do not recognize any interest revenue over the past of time. It will recognize the gain on the loan entirely at maturity, when the cash is received.

Therefore his journal entry at maturity will be:

a debit to cash forthe received amount

a credit to note receivable, to write-off the balance

and a credit to interest revenue to recognize this gain.