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On 12-31-19, J sold some inventory to T. J accepted from T a $4,000,000, 2% note...

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.

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Expert Solution

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

ekkarill92 answered 2 years ago
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