Question

On March 1, 1995, Sonic Inc. sold merchandise to a customer, Chao Corp. and received a $60,000 (face value amount), two-year, non-interest bearing note. The market rate of interest is 11%. The annual reporting period ends August 31 and Sonic Inc. uses the periodic inventory system. Chao Corp. paid the note in full on its maturity date.

The following transactions occurred as a result:

i. Entry of sale of merchandise and acquisition of non-interest-bearing note.

ii. An adjusting entry for interest for the first year-end, August 31, 1995.

iii. An adjusting entry for the second year-end, August 31, 1996.

iv. Entry to record collection of the note on February 29, 1997.

Instructions:

Help Sonic Inc. complete the last remaining journal entry, assuming Sonic Inc. uses the gross method to account for accounts and notes receivable.

Please make sure to show your calculations, this is required.

March 1, 1995	Note Receivable (Dr)	$48,697.35
	Sales (Cr)		$48,697.35
	i.
August 31, 1995	Note Receivable (Dr)	$2,678.35
	Interest Revenue (Cr)		$2,678.35
	ii.
August 31, 1996	Note Receivable (Dr)	$5356.71
	Interest Revenue (Cr)		$5356.71
	iii.
February 29, 1997	Cash (Dr)	$60,000
	Interest Revenue (Cr)
	Note Receivable (Cr)
	iv.

Answer 1