Question

On December 1, 2021, Liang Chemical provides services to a customer for $86,000. In payment for the services, the customer signs a three-year, 12% note. The face amount is due at the end of the third year, while annual interest is due each December 1.

Required:

1. Record the acceptance of the note on December 1, 2021.
2. Record the interest collected on December 1 for 2022 and 2023, and the adjustment for interest revenue on December 31 for 2021, 2022, and 2023.
3. Record the cash collection on December 1, 2024.

Prepare the journal entries for the above transactions. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)

Answer 1

Solution:

1. Record the acceptance of the note on December 1, 2021.

Date	Particulars	Debit($)	Credit($)
Dec 1, 2021	Receivable notes A/c Dr	$86,000
	To sales revenue A/c		$86,000

2. Record the interest collected on December 1 for 2022 and 2023, and the adjustment for interest revenue on December 31 for 2021, 2022, and 2023.

Date	Particulars	Debit($)	Credit($)
Dec 31, 2021	Receivable interest A/c Dr (86,000*12%*1/12)	$860
	To interest income A/c		$860
	(To record adjustment)
Dec 1, 2022	Cash A/c Dr (86,000*12%)	$10,320
	To Interest income A/c		$9,460
	To Receivable interest A/c		$860
	(To record collection)

.

Date	Particulars	Debit($)	Credit($)
Dec 31, 2022	Receivable interest A/c Dr (86,000*12%*1/12)	$860
	To interest income A/c		$860
	(To record adjustment)
Dec 1, 2023	Cash A/c Dr (86,000*12%)	$10,320
	To Interest income A/c		$9,460
	To Receivable interest A/c		$860
	(To record collection)

.

Date	Particulars	Debit($)	Credit($)
Dec 31, 2023	Receivable interest A/c Dr (86,000*12%*1/12)	$860
	To interest income A/c		$860
	(To record adjustment)

3. Record the cash collection on December 1, 2024.

Date	Particulars	Debit($)	Credit($)
Dec 1, 2024	Cash A/c Dr (86,000+10,320)	$96,320
	To Receivable interest A/c		$860
	To Interest income A/c		$9,460
	To Receivable notes A/c		$86,000