In 2014, Congress established a small business direct loan program. The program provides that qualifying businesses can obtain loans at a rate 5 percent below that prevailing on Treasury securities of comparable maturity. The program was to be in effect for a period of twelve years. Its total cost was estimated at $1.3 billion.
In 2015, the Small Business Administration, which administers the program, loaned the S & D Produce Company $100,000 for 10 years at a rate of 5 percent. At the time, the prevailing Treasury rate was 10 percent. The loan was to be repaid in ten annual installments of $12,950.
1. What journal entry should the Small Business Administration make in 2014 when Congress authorized the program? Explain and justify your response.
2. What journal entry should it make in 2015 when it loaned the S & D Produce Company $100,000? Explain and justify your response.
3. What journal entries should it make in 2016 and 2017 upon collection of the first two loan repayments?

  • CreatedAugust 13, 2014
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