Question

Rainey Enterprises loaned $20,000 to Small Co. on June 1, 2018, for one year at 6 percent interest.

Required

Show the effects of the following transactions in a horizontal statements. In the Cash Flow column, indicate whether the item is an operating activity (OA), an investing activity (IA), or a financing activity (FA). The letters NA indicate that an element is not affected by the event. (Do not round intermediate calculations. Enter any decreases to account balances and cash outflows with a minus sign.)

(1) The loan to Small Co.

(2) The adjusting entry at December 31, 2018.

(3) The adjusting entry and collection of the note on June 1, 2019

Answer 1

• On 31 Dec 2018, six month Interest revenue will be accrued: 20000 x 6% x 6/12 = $ 600
• Below, only 'effects' of entries are shown, as required by the question.

	Date	Cash	Notes receivables	Interest receivables	Retained Earnings	Revenues	Expenses	Net Income	Statement of Cash flows
1	01-Jan-18	($20,000) Cash given as loan	$20,000						($20,000)	Financing activities
2	31-Dec-18			$600	$600	$600		$600	NA	No cash inflow or outflow
3	01-Jun-19	$20,000 Cash received on maturity	($20,000)						$20,000	Financing activities
	01-Jun-19	$600		($600)					$600	Operating Activities
	01-Jun-19	$600			$600	$600		$600	$600	Operating Activities