Question

On January 1, 2021, Happy Tubs sold a hot tub to Monica, receiving a two-year, noninterest-bearing...

On January 1, 2021, Happy Tubs sold a hot tub to Monica, receiving a two-year, noninterest-bearing $80,000 note in exchange for a hot tub that normally sells for $68,000. The note is for an amount that achieves an effective interest rate of 5% per year, and Happy Tubs views the financing component of this transaction to be significant.

Required:

1. Prepare the journal entry to record the sale.

2. Prepare any adjusting entry necessary on December 31, 2021.

3. Prepare any adjusting entry necessary on December 31, 2022.

Business   Accounting   
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Homework Answers

Answer #1
Transaction Account Titles and Explanation Debit Credit
1 Note Receivable     80,000
Discount on Note Receivable     12,000
Sales Revenue     68,000
2 Discount on Note Receivable       6,000
Interest Revenue       6,000
3 Cash     80,000
Discount on Note Receivable       6,000
Note Receivable     80,000
Interest Revenue       6,000
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