On April 1, 2021, Shoemaker Corporation realizes that one of its main suppliers is having difficulty meeting delivery schedules, which is hurting Shoemaker's business. The supplier explains that it has a temporary lack of funds that is slowing its production cycle. Shoemaker agrees to lend $450,000 to its supplier using a 12-month, 12% note. Required:

a. The loan of $450,000 and acceptance of the note receivable on April 1, 2021.
b. The adjustment for accrued interest on December 31, 2021.
c. Cash collection of the note and interest on April 1, 2022.

Record the above transactions for Shoemaker Corporation.

Please find answer in explanation column

Explanation:

1.To record loan given

DateAccount title and explanation      Debit                 Credit

Apr 1 2021    Notes receivable                   $450,000  

                        Cash                                                                     $450,000        

2.To record accrued interest

DateAccount title and explanation        Debit                   Credit

Dec 31 2021Interest receivable                     $40,500

         Interest revenue                                                                  $40,500

Calculation

Interest Revenue = Principal x rate x Time

=$450,000 x  12% x 9/12 ( April- December)

=$40,500

To record cash collection

DateAccount title and explanation      Debit                      Credit

Apr 1,2022     Cash                                        $504,000

             Notes receivable                                                            $450,000

             Accrued Interest                                                               $54,000

Calculation:

Interest Revenue for January -March 31 =Principal x rate x Time/ Period   

=450,000 X 12% X 3/12  

=$13,500

Accrued Interest for (April- December of 2021) and (January -March 31 of 2022) =$40,500+$13,500=$54,000