1. Prepare journal entries to record the following hypothetical 2006 events:a. A customer deposits $50,000 in WaMu savings account on 1/1/2006.b. WaMu pays a 1% (annual) interest on that deposit on 3/31/06.c. WaMu lends the $50,000 to another customer for a 6% home loan on 1/1/06.d. WaMu accrues interest on that loan as of 3/31/06.2. How much net interest income (profit) did WaMu earn in the first quarter of 2006 on this deposit and the corresponding loan?

1. A. Dr Cash50,000

Cr Customers Saving Account 50,000

B.Dr Interest Expense 125

Cr Cash 125

C. Dr Loan Receivables50,000

Cr Cash 50,000

D. Dr Interest Receivables 750

Cr Interest Income 750

2. $625

Explanation:

Answer and Explanation:

1. Preparation of journal entries

a. In a situation where A customer made deposits of the amount of $50,000 in WaMu savings account on 1/1/2006 the Journal entry will be:

Dr Cash50,000

Cr Customers Saving Account 50,000

(Being to record the deposit from customers)

b. In a situation where WaMu pays a 1% as annual interest on the deposit on 3/31/06 the journal entry will be:

Dr Interest Expense 125

(50,000*1%*3/12)

Cr Cash 125

(Being to record the payment of interest Expense)

c. In a situation where WaMu lends out the

amount of $50,000 to another customer the Journal entry will be:

Dr Loan Receivables50,000

Cr Cash 50,000

(Being to record the receivable lent to customers)

d. In a situation where WaMu accrues interest on this date 3/31/06 the journal entry will be:

Dr Interest Receivables 750

(50,000*6%*3/12)

Cr Interest Income 750

(Being to record the interest accrued)

2. Calculation for How much net interest income (profit) did WaMu earn in the first quarter

First step is to calculate the Net Interest Rate

Interest Rate on Receivables6%

Less Interest Rate on Payable1%

Net Interest Rate5%

Second Step will be to calculate the Annual Net Interest

Using this formula

Annual Net Interest=Principal *Net Interest Rate

Let plug in the formula

Annual Net Interest=50,000*5%

Annual Net Interest=2,500

Last step is to calculate the first quarter net interest income

Using this formula

First quarter net interest income=Time*Annual Net Interest

Let plug in the formula

First quarter net interest income=3/12*2,500

First quarter net interest income=$625

Therefore the First quarter net interest income will be $625

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