Question

On April 1, 2006, Cortana Inc. sold merchandise to a customer, John117 Corp. and received a...

On April 1, 2006, Cortana Inc. sold merchandise to a customer, John117 Corp. and received a $50,000 (face amount), two-year, non-interest bearing note. The market rate of interest is 10%. The annual reporting period ends September 30 and Cortana Inc. uses the periodic inventory system. John117 Corp. paid the note in full on its maturity date.

Instructions:

Journalize and date the following transactions, assuming Cortana Inc. uses the gross method to account for accounts and notes receivable.

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

ii. The adjusting entry for interest for the first year-end, September 30, 2006.

iii. Collection of the note on March 31, 2008.

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