Question

In: Accounting

On June 30, 2021, the Esquire Company sold merchandise to a customer and accepted a noninterest-bearing...

On June 30, 2021, the Esquire Company sold merchandise to a customer and accepted a noninterest-bearing note in exchange. The note requires payment of $46,000 on March 31, 2022. The fair value of the merchandise exchanged is $41,860. Esquire views the financing component of this contract as significant.

Required:

1. Prepare journal entries to record the sale of merchandise (omit any entry that might be required for the cost of the goods sold), any December 31, 2021 interest accrual, and the March 31, 2022 collection.
2. What is the effective interest rate on the note?

Solutions

Expert Solution

Answer
1)
Date Account title Debit credit
June 30 2021 Note receivable $     46,000
Discount on note receivable $       4,140
sales revenue $     41,860
December 31 2021 Discount on note receivable ( 4140*6/9) $       2,760
Interest revenue $       2,760
march 31 2022 Discount on note receivable $       1,380
Interest revenue (4140-2760) $       1,380
March 31 2022 cash $     46,000
Note receivable $     46,000
2)Discount amount = Face value of note *r *n/12
   4140 = 46000* r *9/12
   4140 /46000 = r*9/12
    .09*12/9 = r
    r = .012 or 12%

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