Question

On December 31, 2015, Oriole Co. performed environmental consulting services for Hayduke Co. Hayduke was short of cash, and Oriole Co. agreed to accept a $ 282,400 zero-interest-bearing note due December 31, 2017, as payment in full. Hayduke is somewhat of a credit risk and typically borrows funds at a rate of 12%. Oriole is much more creditworthy and has various lines of credit at 6%. Prepare the journal entry to record the transaction of December 31, 2015, for the Oriole Co. Assuming Oriole Co.’s fiscal year-end is December 31, prepare the journal entry for December 31, 2016. And Assuming Oriole Co.’s fiscal year-end is December 31, prepare the journal entry for December 31, 2017.

Answer 1

Solution:

Date	Account titles and explanation	Debit($)	Credit($)	Calculations
2015 Dec 31	Notes receivables A/c Dr	$282,400
	To notes receivable discount A/c		$251,336	$282,400 *PV(6%,2)
	To Service consulting A/c		$31,064
2016 Dec 31	Notes receivable discount A/c Dr	$30,160.32		($251,336*12%)
	To Interest revenue A/c		$30,160.32
2017 Dec 31	Notes receivable discount A/c Dr	$30,257.14		($282,400 /(1+12%)^1) - $282,400
	To Interest revenue A/c		$30,257.14
	(To record interest revenue)
	Cash A/c Dr	$282,400
	To notes receivable A/c		$282,400
	(To record collection of note)