Question

On June 30, 2021, the Esquire Company sold merchandise to a customer and accepted a noninterest-bearing note in exchange. The note requires payment of $41,000 on March 31, 2022. The fair value of the merchandise exchanged is $39,155. Esquire views the financing component of this contract as significant. 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), any December 31, 2021 interest accrual, and the March 31, 2022 collection 2. What is the effective interest rate on the note? 28:01 Complete this question by entering your answers in the tabs below. Required 1 Required 2 Prepare journal entries to record the sale of merchandise (omit any entry that might be required for the cost of the goods sold), any 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. Do not round intermediate calculations.) View transaction list Journal entry worksheet 1 2 3 4 Record the sale of merchandise.

Answer 1

Prepare journal entries as follows:

Date	Account Titles	Debit	Credit
Jun. 30, 2021	Note Receivable	$41,000
	Discount on Note Receivable		$1,845
	Sales revenue		$39,155
Dec. 31, 2021	Discount on Note Receivable	$1,230
	Interest Revenue [$1845/9*6]		$1,230
Mar. 31, 2022	Discount on Note Receivable	$615
	Interest Revenue [$1845/9*3]		$615
Mar. 31, 2022	Cash	$41,000
	Note Receivable		$41,000

_______________________________________________________

Compute Effective Interest rate of note:

= $1845  $\div$ $39,155 = 4.712%

Effective Interest Annualized = [4.712% $\div$ 9]  $\times$ 12

= 6.282%