On June 1, 2020, BlueSky Compa
On June 1, 2020, BlueSky Company provided services to GreenGrassCompany and received a 1-year, 8%, $150,000 note, due May 31, 2021.Interest is payable at maturity. BlueSky records adjusting entriesannually at December 31.
a. Compute the total interest on the note. How much interestrevenue will be recognized in 2020? In 2021?
b. Record the June 1, 2020, journal entry for BlueSky.
c. Record the December 31, 2020, adjusting journal entry forBlueSky.
d. BlueSky’s 2020 preliminary net income of $100,000 wascomputed without including any amounts related to the receipt ofthe note or the 12-31-20 adjusting entry. Determine the correctamount of 2020 net income. Ignore taxes.
e. On BlueSky’s December 31, 2019, balance sheet, retainedearnings was reported at $300,000. In 2020, the company paid$40,000 in dividends. What is the December 31, 2020, retainedearnings balance?
f. What amount(s) will BlueSky report on the December 31, 2020,balance sheet related to the note? How will these amounts beclassified?
e. Record the May 31, 2021, journal entry for BlueSky for thereceipt of principal and interest.
Answer:
a.Total Interest = $150000 x 8% = $12000For 2020 = $12000 x 7/12 = $7000For 2021 = $12000 x 5/12 = $5000
b. & c.
| Date | AccountTitles | Debit | Credit |
| Jun. 1 | Notes Receivable | $ 150,000 | |
| Service Revenue | $ 150,000 | ||
| Dec. 31 | Interest Receivable | $ 7,000 | |
| Interest Revenue | $ 7,000 |
d. Net Income = $100000+150000+7000 = $257000 or $107000
e.Retained Earnings = $300000+257000-40000 = $517000
f.Current AssetNotes Receivable = $150000Interest Receivable = $7000
g.
| Date | AccountTitles | Debit | Credit |
| May. 31 | Notes Receivable | $ 162,000 | |
| Notes Receivable | $ 150,000 | ||
| Interest Receivable | $ 7,000 | ||
| Interest Revenue | $ 5,000 |
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