Question

On June 30, 2021, the Esquire Company sold some merchandise to a customer for $40,000. In payment, Esquire agreed to accept a 5% note requiring the payment of interest and principal on March 31, 2022. The 5% rate is appropriate in this situation. Required: 1. Please help me make the journal entries to record the sale of merchandise (omit any entry that might be required for the cost of the goods sold), the December 31, 2021 interest accrual, and the March 31, 2022 collection. (Do not round intermediate calculations.) 2. If the December 31 adjusting entry for the interest accrual is not prepared, by how much will income before income taxes be over-or understated in 2021 and 2022? Thank you!

Answer 1

Answer
Date	Account	Debit	Credit
June 30 2021	note receivable	$     40,000
	sales revenue		$     40,000
	( To record sales made against note )
dec 31 2021	Interest receivable	$       1,000
	Interest revenue [40000*.05*6/12]		$       1,000
	( To record interest accrued for 6 month )
march 312022	Cash	$     41,500
	Interest receivable		$       1,000
	Interest revenue [40000*.05*3/12]		$          500
	note receivable		$     40,000
2)2021 income will be understated by $ 1,000 if adjusting entry is not prepared and revenue for 6 months accrued not recognised in 2021.
2021 income will overstated by 1,000 as same is the income for 2021.