Question

On November 1, 2021, Headlands Farm Equipment sold a harvesting machine to Stead Industries. Instead of a cash payment, Stead Industries gave Headlands Farm Equipment a $106,000, two-year, 6.0% note. The note required interest to be paid quarterly starting February 1, 2022. Headlands Farm Equipment’s financial statements are prepared on a calendar-year basis. The following instructions refer only to this note receivable.

Prepare journal entries for Headlands Farm Equipment for the full term of the note. Include the sale of the equipment on Nov. 1, 2021, receipt of interest, adjusting entries required on December 31, 2021 and 2022, and the collection of the note on November 1, 2023. Ignore Cost of Goods Sold. (Credit account titles are

Answer 1

Journal Entries In th Books of Headland Farm Equipments

1.On sale of Harvesting Machine

01 November 2021 Stead Industries A/c................Dr 1,06,000

To Sales A/c 1,06,000

2.Being received Bills Receivable

01 November 2021 Bills Receivable 6.0% A/c................Dr 1,06,000

To Stead Industries A/c 1,06,000

3.Adjustment entry At the end of the Financial Year 2021

a.) On due of interest

   31 December 2021 Stead Industries A/c.........Dr 1060

To Interest on Bills Receivable A/c 1060

b.)Being interest outstanding at the end of the financial year 2021

31 December 2021 Interest on Bills Receivable A/c.........Dr. 1060

To Profit & Loss A/c 1060

4.Opening Entries at the begining of the financial year 2022

01 January 2022 Stead Industries A/c .........Dr 1060

To Interest on Bills Receivable A/c 1060

5.First time payment of interest for the period between 01.11.2021 to 31.01.2022

01 February 2022 Stead Industries A/c .........Dr 530   

To Interest on Bills Receivable A/c 530

01 February 2022 Cash/Bank A/c……………….. ......Dr 1590

To Stead Industries A/c               1590

6.Entry for Interest Due and Payment for the second quarter of the FY 2022

01 May 2022    Stead Industries A/c ........Dr 1590   

To Interest on Bills Receivable A/c 1590

01 May  2022 Cash /Bank A/c …………………......Dr 1590

To Stead Industries A/c ........Dr 1590

7.Entry for Interest Due and Payment for the Third quarter of the FY 2022

01 August 2022    Stead Industries A/c ........Dr 1590   

To Interest on Bills Receivable A/c 1590

01 August  2022 Cash /Bank A/c …………………......Dr 1590

To Stead Industries A/c ........Dr 1590

8.Entry for Interest Due and Payment for the Fourth quarter of FY 2022

01 November 2022    Stead Industries A/c ........Dr 1590   

To Interest on Bills Receivable A/c 1590

01 November  2022    Cash /Bank A/c …………………......Dr 1590

To Stead Industries A/c ........Dr 1590

9.Adjustment Entries at the end of the Financial Year 2022

a.) On due of interest

   31 December 2022 Stead Industries A/c .........Dr    1060

To Interest on Bills Receivable A/c 1060

b.)Being interest outstanding at the end of the financial year 2022

31 December 2022 Interest on Bills Receivable A/c.........Dr. 1060

To Profit & Loss A/c 1060

10.Opening Entries at the beginning of the financial year 2023

01 January 2023 Stead Industries A/c .........Dr 1060

To Interest on Bills Receivable A/c 1060

11.Payment of interest for the period between 01.11.2022 to 31.01.2023

01 February 2023 Stead Industries A/c ........Dr 530   

To Interest on Bills Receivable A/c 530

01 February 2023    Cash / Bank A/c ………....Dr                   1590

To Stead Industries.. A/c    1590

12.Entry for Interest Due and Payment for the second quarter of the FY 2023

01 May 2023 Stead Industries A/c ........Dr 1590   

To Interest on Bills Receivable A/c 1590

01 May  2023 Cash / Bank A/c ………....Dr                   1590

To Stead Industries.. A/c    1590

7.Entry for Interest Due and Payment for the Third quarter of the FY 2023

01 August   2023 Stead Industries A/c ........Dr 1590   

To Interest on Bills Receivable A/c 1590

01 August 2023 Cash / Bank A/c ………....Dr                   1590

To Stead Industries.. A/c    1590

8.Entry for Interest Due for the Fourth quarter of the FY 2023

01 November   2023 Stead Industries A/c ........Dr 1590   

To Interest on Bills Receivable A/c 1590

9. On Maturity of Note

01 November 2023 Stead Industries A/c.......................Dr 1,06,000

To Bills Receivable 6.0% A/c 1,06,000

10.On Collection of Note with interest for the last quarter upto maturity of the bill

01 November 2023 Cash/Bank A/c...................................Dr 1,07,590

To Stead Industries A/c 1,07,590