Question

Marydale Products permits its customers to defer payment by giving personal notes instead of cash. All the notes bear interest and require the customer to pay the entire note in a single payment 6 months after issuance. Consider the following transactions, which describe Marydale’s experience with two such notes:

a.	On October 31, 2019, Marydale accepts a 6-month, 9% note from Customer A in lieu of a $3,600 cash payment for services provided that day.
b.	On February 28, 2020, Marydale accepts a 6-month, $2,400, 7% note from Customer B in lieu of a $2,400 cash payment for services provided on that day.
c.	On April 30, 2020, Customer A pays the entire note plus interest in cash.
d.	On August 31, 2020, Customer B pays the entire note plus interest in cash.

	Required:
	Prepare the necessary journal and adjusting entries required to record Transactions a through d in Marydale’s records.

Answer 1

Assuming Account year ends by December every year (Calender Year)

Date Account Title Dedit Credit

31 oct, 2019 Notes Receivable A/c Dr 3,600

To Sales A/c 360 [Services provided with notesfrom customer A @ 9% interest for 6 months]

31 Dec, 2019 Interest Receivable A/c Dr 81

To Interest Revenue A/c 81 [3600 x 9% X 3/12] [ Recognised accrued interest revenue]

28 Feb, 2020 Notes Receivable A/c Dr 2,400

To Sales A/c 2,400

[Services provided with notesfrom customer B @ 7% interest for 6 months]

30 Apr, 2020 Cash A/c Dr 3,789

To Notes Receivale A/c 3,600

To Interest Receivale A/c 81

To Interest Revenue A/c 108 [3600 x 9% x 4/12] [cash received with interest From Customer A]

31 Aug, 2020 Cash A/c Dr 2,484

To Notes receivable A/c 2400

To Interest Revenue A/c 84 [ 2400 x 7% x 6 /12 ]   [cash received with interest From Customer b]

31 oct, 2019 Notes Receivable A/c Dr 3,600

To Sales A/c 3600

[Services provided with notesfrom customer A @ 9% interest for 6 months]