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On October 1, 2017, Vaughn Equipment Company sold a pecan-harvesting machine to Valco Brothers Farm, Inc....

On October 1, 2017, Vaughn 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, $138,800, 8% note (a realistic rate of interest for a note of this type). The note required interest to be paid annually on October 1. Vaughn’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 Vaughn Equipment Company for the entire term of the note. Assume that reversing entries are not made on January 1, 2018 and January 1, 2019.

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Answer #1

Journal entry :

Date account and explanation debit credit
Oct 1,2017 Notes receivable 138800
    Sales revenue 138800
(To record Sales)
Dec 31,2017 Interest receivable (138800*8%*3/12) 2776
    Interest revenue 2776
(To record interest)
Oct 1,2018 Cash (138800*8%) 11104
    Interest receivable 2776
     Interest revenue 8328
(To record interest received)
Dec 31,2018 Interest receivable 2776
    Interest revenue 2776
(To record interest)
Oct 1,2019 Cash 149904
    Interest receivable 2776
    INterest revenue 8328
    Notes receivable 138800
(To record amount received)
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