Question

On October 1, 2020, Monty Equipment Company sold a pecan-harvesting machine to Valco Brothers Farm, Inc. In lieu of a cash payment Valco Brothers Farm gave Arden a 2-year, $144,800, 10% note (a realistic rate of interest for a note of this type). The note required interest to be paid annually on October 1. Monty’s financial statements are prepared on a calendar-year basis.

Assuming Valco Brothers Farm fulfills all the terms of the note, prepare the necessary journal entries for Monty Equipment Company for the entire term of the note. Assume that reversing entries are not made on January 1, 2021 and January 1, 2022. (Record journal entries in the order presented in the problem. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Answer 1

SOLUTION

Date	Accounts titles and Explanation	Debit ($)	Credit ($)
Oct 1,2020	Notes receivable	144,800
	Sales revenue		144,800
	(To record Sales)
Dec 31,2020	Interest receivable	3,620
	Interest revenue (144,800 * 10%*3/12)		3,620
	(To record interest)
Oct 1,2021	Cash ((144,800 * 10%)	14,480
	Interest receivable		3,620
	Interest revenue		10,860
	(To record interest received)
Dec 31,2021	Interest receivable	3,620
	Interest revenue		3,620
	(To record interest)
Oct 1,2022	Cash	159,280
	Interest receivable		3,620
	Interest revenue		10,860
	Notes receivable		144,800
	(To record amount received)