Question

Ayayai Corp. was experiencing cash flow problems and was unable to pay its $96,000 account payable to Bramble Corp. when it fell due on September 30, 2020. Bramble agreed to substitute a one-year note for the open account. The following two options were presented to Ayayai by Bramble Corp.:

Option 1:		A one-year note for $96,000 due September 30, 2021. Interest at a rate of 8% would be payable at maturity.
Option 2:		A one-year non–interest-bearing note for $103,680. The implied rate of interest is 8%.

Assume that Bramble Corp. has a December 31 year end.

(a)

Assuming Ayayai Corp. chooses Option 1, prepare the entries required on Bramble Corp.’s books on September 30, 2020, December 31, 2020, and September 30, 2021. (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.)

Account Titles and Explanation Date Debit Credit

Answer 1

solution Date - Account title Debit Gredit Sep 30, 2020 Note receivable 96000 96000 Account receivable Dec 31, 2020 1920 Interest recevable [ 96000 X 8%*3/12] 1920 Interest revenue. Cash 103680 Sep 30, 2021 Interest receivable . 1920 Interest revenue 5760 Note receivable 96000