The following transactions took place for Smart Solutions Inc. 2017 a. July 1 Loaned $79,000 to an employee of the company and received back a one-year, 10 percent note. b. Dec. 31 Accrued interest on the note. 2018 c. July 1 Received interest on the note. (No interest has been recorded since December 31.) d. July 1 Received principal on the note. Required: Prepare the journal entries that Smart Solutions Inc. would record for the above transactions. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

a.

1 July 2017 Notes receivable $79000 Dr

Cash $79000 Cr

b.

31 Dec 2017 Interest receivable $3950 Dr

Interest revenue $3950 Cr

c.

30 June 2018 Interest receivable $3950 Dr

Interest Revenue $3950 Cr

1 July 2018 Cash $7900 Dr

Interest receivable $7900 Cr

d.

1 July 2018 Cash $79000 Dr

Notes receivable $79000 Cr

Explanation:

a.

The receipt of note against issuing loan will cause a credit to cash against notes receivable.

b.

The interest from July to Dec 2017 relates to 2017. Following accrual principle it will be recorded as interest revenue and as it is not received so an asset Interest receivable will be debited.

The interest expense for 6 months is = 79000 * 0.1 * 6/12 = 3950

c.

First we will record the remaining interest on 30 June 2017. Remaining interest = 7900 - 3950 = 3950

Then we will debit cash on July 1 when interest is received and credit interest receivable to close the account.

d.

The cash will be debited and notes receivable account will be closed by crediting it.