Question

Cheyenne Corp. was experiencing cash flow problems and was unable to pay its $113,000 account payable to Culver Corp. when it fell due on September 30, 2020. Culver agreed to substitute a one-year note for the open account. The following two options were presented to Cheyenne by Culver Corp.:

Option 1:		A one-year note for $113,000 due September 30, 2021. Interest at a rate of 8% would be payable at maturity.
Option 2:		A one-year non–interest-bearing note for $122,040. The implied rate of interest is 8%.

Assume that Culver Corp. has a December 31 year end.

A. Assuming Cheyenne Corp. chooses Option 1, prepare the entries required on Culver Corp.’s books on September 30, 2020, December 31, 2020, and September 30, 2021. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275. Record journal entries in the order presented in the problem.)

B. Assuming Cheyenne Corp. chooses Option 2, prepare the entries required on Culver Corp.’s books on September 30, 2020, December 31, 2020, and September 30, 2021. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275. Record journal entries in the order presented in the problem.)

A list of possible accounts is as follows:

Accounts Payable Accounts Receivable Accrued Liabilities Accumulated Depreciation - Equipment Advances to Employees Advertising Expense Allowance for Doubtful Accounts Allowance for Sales Returns and Allowances Bad Debt Expense Bank Charges Expense Cash Cash Over and Short Due from Factor Entertainment Expense Equipment Finance Expense Finance Revenue Freight in Freight out Gain on Disposal of Equipment Gain on Disposal of Land Interest Expense Interest Income Interest Receivable Inventory Land Loss on Disposal of Equipment Loss on Disposal of Land Loss on Disposal of Receivables Loss on Impairment Miscellaneous Expense No Entry Notes Payable Notes Receivable Office Expense Petty Cash Postage Expense Prepaid Expenses Purchase Discounts Recourse Liability Refund Liability Rent Expense Sales Discounts Sales Discounts Forfeited Sales Returns and Allowances Sales Revenue Servicing Liability Service Revenue Supplies Supplies Expense Unearned Revenue

Answer 1

Journal Entries:

A)
Date	Account Titles and Explanation	Debit	Credit
Sep. 30	Notes Receivable	$113,000
	Accounts Receivable		$113,000
	(To record the issue of 8% note)
Dec. 31	Interest Receivable	$2,260
	Interest Income ($113,000*8/100*3/12 months)		$2,260
	(To record the interest on the note)
Sep. 30	Cash ($113,000 + $6,780 + $2,260)	$122,040
	Interest Receivable		$2,260
	Interest Income ($113,000*8/100*9/12 months)		$6,780
	Notes Receivable		$113,000
	(To record the collection of the note along with interest)
B)
Date	Account Titles and Explanation	Debit	Credit
Sep. 30	Notes Receivable	$113,000
	Accounts Receivable		$113,000
	(To record the issue of 8% note)
Dec. 31	Interest Receivable	$2,260
	Interest Income ($113,000*8/100*3/12 months)		$2,260
	(To record the interest on the note)
Sep. 30	Interest Receivable	$6,780
	Interest Income ($113,000*8/100*9/12 months)		$6,780
	(To record the interest on the note)
Sep. 30	Cash	$122,040
	Notes Receivable		$122,040
	(To record the collection of the note along with interest)