Question
On June 1, 2018, Alpha Company provided services to Bicycle Company and received a 1-year, 8%, $150,000 note, due May 31, 2019. Interest is payable
On June 1, 2018, Alpha Company provided services to Bicycle Company and received a 1-year, 8%, $150,000 note, due May 31, 2019. Interest is payable at maturity. Alpha records adjusting entries annually at December 31.
a. Compute the total interest on the note. How much interest revenue will be recognized in 2018? In 2019?
b. Record the June 1, 2018, journal entry for Alpha.
c. Record the December 31, 2018, adjusting journal entry for Alpha.
d. Alphas 2018 preliminary net income of $100,000 was computed without including any amounts related to the receipt of the note or the 12-31-18 adjusting entry. Determine the correct amount of 2018 net income. Ignore taxes.
e. On Alphas December 31, 2017, balance sheet, retained earnings was reported at $300,000. In 2018, the company paid $40,000 in dividends. What is the December 31, 2018, retained earnings balance?
f. What amount(s) will Alpha report on the December 31, 2018, balance sheet related to the note? How will these amounts be classified?
e. Record the May 31, 2019, journal entry for Alpha for the receipt of principal and interest.
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