TASK SHEET 9.3.

Recording Bank Loans

You are provided with the following independent transactions:

1. Ms. A borrowed money from B Lending to be used in a business. She received P80,000. Net of 5%
interest for two months. After three months, Ms. A paid the money she borrowed from B Lending.

Journal entries in the books of Ms. A:

Cash 80,000
Loans payable 80,000

Loans payable 80,000

Interest expense 6,000
Cash 86,000

Journal entries in the books of B:

Loans receivable 80,000

Cash 80,000

Cash 86,000
Loans receivable 80,000
Interest Income 6,000

2. Mr. C borrowed money from China Bank to be used in business. He received P498,000, net of
processing fee P2,000. The loan is payable in one year with an annual interest of 18%. Mr. C paid the
loan including the interest within the due date.

Journal entries in the books of Mr. C:

Cash 498,000
Misc. expense 2,000
Loans payable 500,000

Loans payable 500,000

Interest expense 90,000
Cash 590,000
Journal entries in the books of China Bank:
Loans receivable 500k
Cash 500k

Cash 590k
Loans receivable 500k
Interest income 90k

3. Ms. B borrowed money from BPI to be used in business. She received P780,000 (net of P120,000
advanced interest), payable in three equal annual installment. Ms. B paid the loan within the given due
date.

Journal entries in the books of Ms. B:

Cash 780,000
Loans payable 780,000

1ST Installment:
Loans payable 260,000
Interest expense 40,000
Cash 300,000

2nd Installment:
Loans payable 260,000
Interest expense 40,000
Cash 300,000

3rd Installment:
Loans payable 260,000
Interest expense 40,000
Cash 300,000

Journal entries in the books of BPI:

Loans receivable 780k
Cash 780k

1ST Installment:
Cash 300k
Loans receivable 260k
 Interest income 40k

2nd Installment:
Cash 300k
Loans receivable 260k
Interest income 40k

3rd Installment:
Cash 300k
Loans receivable 260k
Interest income 40k

4. Mr.D borrowed money from the Agdangan Bank to be used in business. He received P997,000, net of
P3,000 processing fee. The loan is secured by a land mortgage, payable in one year with an interest of
12% per year.

Journal entries in the books of Mr. D:

Cash 997,000
Miscellaneous expense 3,000
Mortgage Loan payable-Agdangan Bank 1,000,000

Journal entry if Mr. D paid his loan within the given due date:
Mortgage Loans payable- Agdangan Bank 1,000,000
Interest expense 120,000
Cash 1,120,000

Journal entries in the books of Agdangan Bank:

Mortgage Loans receivable-Mr. D 1,000,000

Cash 1,000,000

Cash 1,120,000
Loans receivable 1,000,000
Interest Income 120,000

Required:
Make the journal entries of the above independent transactions in the books of the (a) borrower, and
(b) lender.