Question

Marydale Products permits its customers to defer payment by giving personal notes instead of cash. All the notes bear interest and require the customer to pay the entire note in a single payment 6 months after issuance. Consider the following transactions, which describe Marydale’s experience with two such notes: a. On October 31, 2019, Marydale accepts a 6-month, 9% note from Customer A in lieu of a $4,200 cash payment for services provided that day. b. On February 28, 2020, Marydale accepts a 6-month, $1,800, 6% note from Customer B in lieu of a $1,800 cash payment for services provided on that day. c. On April 30, 2020, Customer A pays the entire note plus interest in cash. d. On August 31, 2020, Customer B pays the entire note plus interest in cash. Required: Prepare the necessary journal and adjusting entries required to record Transactions a through d in Marydale’s records.

Answer 1

Journal entry

Date	account and explanation	Debit	Credit
Oct 31	Notes receivable-Customer A	4200
	Service revenue		4200
Dec 31	Interest receivable (4200*9%*2/12)	63
	Interest revenue		63
Feb 28	Notes receivable-Customer B	1800
	Service revenue		1800
Apr 30	Cash	6489
	Notes receivable-Customer A		4200
	Interest receivable		63
	Interest revenue		126
Aug 31	Cash	1854
	Notes receivable-Customer B		1800
	Interest revenue		54