In: Accounting
On 12-31-19, J sold some inventory to T. J accepted from T a $4,000,000, 2% note receivable. J will collect interest on the note every 12-31 starting 12-31-20. J will collect the note principle in full on 12-31-21. At the time J sold the inventory, the market rate on similar notes was 3%. The cost of the inventory J sold was $500,000. Prepare the entries J should make on 12-31-19, 12-31-20, and 12-31-21.
Solution : | ||||
JOURNAL ENTRIES IN THE BOOKS OF J | ||||
Journal Entries | ||||
Sr. No. | Date | Account Title | Debit | Credit |
1 | 12-31-19 | Note Receivable | $ 4,000,000 | |
Sales Revenue | $ 4,000,000 | |||
2 | 12-31-19 | Cost of Goods Sold | $ 500,000 | |
Merchandise Inventory | $ 500,000 | |||
3 | 12-31-20 | Cash ($ 4,000,000 X 2%) | $ 80,000 | |
Interest Revenue | $ 80,000 | |||
4 | 12-31-21 | Cash | $ 4,080,000 | |
Interest Revenue | $ 80,000 | |||
Note Receivable | $ 4,000,000 | |||