Question

Exercise 7-18 (Algo) Notes receivable [LO7-7] On June 30, 2021, the Esquirempany sold some merchandise to a customer for $62,000. In payment, Esquire agreed to accepta 6% note requiring the payment of interest and principal on March 31, 2022. The 6% rate is appropriate in this situation. Required: 1. Prepare 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? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Prepare journal entries to record the sale of merchandise (amit 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. (If no entry is required for a transaction/event, select "No journal entry required in the first account field.) View transaction list

Answer 1

Solution 1:

Date	General Journal	Debit	Credit
30-June-2021	Notes Receivable	62000
	Sales revenue		62000
31-Dec-2021	Interest Receivable (62000*6%*6/12)	1860
	Interest Revenue		1860
31-March-2022	Cash	64790
	Interest Receivable		1860
	Interest Revenue		930
	Notes Receivable		62000

Solution 2:

2021 Income before income taxes would be lower by $1860.

2022 income before income taxes would be higher by $1860.

Answer 2

For intereset revenue of 31-march-2022 

62,000*6%*3/12= 930

the 3 months is from January to March after December