Question

Tanning Corp. was experiencing cash flow problems and was unable to pay its $123,600 account payable to Sun Corp. when it fell due on September 30, 2017.

Sun Corp. agreed to substitute a one-year note for the open account. The following two options were presented to Tanning Corp by Sun Corp.:

Option 1: A one-year note for $123,600 due September 30, 2018. Interest at a rate of 9% would be payable at maturity.

Option 2: A one-year non–interest-bearing note for $134,724. The implied rate of interest is 9%. Assume that Sun Corp. has a December 31 year end.

A) Assuming Tanning Corp. chooses Option 1, prepare the entries required on Sun Corp.’s books on September 30, 2017, December 31, 2017, and September 30, 2018. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275. Record journal entries in the order presented in the problem.)

No. Account Titles and Explanation______Debit________-Credit

Need two entries - Date _______________

________________

Need two entries -Date ________________

________________

Need 4 entries Date ________________

_________________

_________________

________________

B) Assuming Tanning Corp. chooses Option 2, prepare the entries required on Sun Corp.’s books on September 30, 2017, December 31, 2017, and September 30, 2018. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275. Record journal entries in the order presented in the problem.) (8 entries total)

No. Account Titles and Explanation______Debit________-Credit

Need two entries Date ______________________

______________________

Need two entries Date ______________________

_______________________

Need two entries Date ______________________

_____________________

To record Interest

Need two entries Date __________________

___________________

To record Notes

Answer 1

A) One-year note for $123600

Date	Account Titles and Explanation	Debit	Credit
Sep. 30, 2017	Notes receivable	123600
	Accounts receivable		123600
	(To record note received against account)
Dec. 31, 2017	Interest receivable	2781
	Interest revenue ($123600 x 9% x 3/12)		2781
	(To record interest accrued on note)
Sep. 30, 2018	Cash	11124
	Interest receivable		2781
	Interest revenue ($123600 x 9% x 9/12)		8343
	(To record collection of interest)
Sep. 30, 2018	Cash	123600
	Notes receivable		123600
	(To record collection of note)

B) One-year non-interest bearing note for $134724

Date	Account Titles and Explanation	Debit	Credit
Sep. 30, 2017	Notes receivable	134724
	Premium on note receivable		11124
	Accounts receivable		123600
	(To record note received against account)
Dec. 31, 2017	Premium on note receivable	2781
	Interest revenue ($11124 x 3/12)		2781
	(To record amortization of discount on note)
Sep. 30, 2018	Premium on note receivable	8343
	Interest revenue ($11124 x 9/12)		8343
	(To record interest)
Sep. 30, 2018	Cash	134724
	Notes receivable		134724
	(To record notes)

Note: These are all the journal entries required. Kindly input the same in the format required by entering "No Entry" for account titles and 0 for amounts wherever required in the format.