Question

On October 1, 2017, Novak Corp., a farm equipment dealer, sold a harvesting machine to Sweet Acacia Industries. Instead of a cash payment, Sweet Acacia Industries gave Novak a $130,000, two-year, 12% note; 12% is a realistic rate for a note of this type. The note required interest to be paid annually on October 1, beginning October 1, 2018. Novak’s financial statements are prepared on a calendar-year basis.

A) Assuming that no reversing entries are used and that Sweet Acacia Industries fulfills all the terms of the note, prepare the necessary journal entries for Novak Corp. for the entire term of the note.

B) Repeat the journal entries under the assumption that Novak Corp. uses reversing entries.

Answer 1

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Naming convention is not available, can be slightly different per question Ignore the order of commas in amount At maturity, entry for interest collection can be posted along with collection of note amount per question format requirement. Solution: Jounal entries - Novak Corp. - No Reversing A) Date Account title and explaination bitCredit Oct.01 Note Receivable $1,30,000 2017 Sales Revenue $1,30,000 To record the sale on note) ( 130000*12%)/12*3 $ 3,900 Dec.31 Interest Receivable 2017 Interest Revenue $ 3,900 To record the accrual of interst revenue) (130000*12%) 15,600 Oct.01 Cash 2018 Interest Receivable Interest Revenue To record the collection of interest) $ 3,900 $ 11,700 (130000*12%)/12*9 ( 130000*12%)/12*3 $ 3,900 Dec.31 Interest Receivable 2018 Interest Revenue $ 3,900 To record the accrual of interst revenue) (130000*12%) 15,600 Oct.01 Cash 2019 Interest Receivable Interest Revenue To record the collection of interest) $ 3,900 $ 11,700 (130000*12%)/12*9 $1,30,000 Oct.01 Cash 2019 Note Receivable $1,30,000 To record the collection of note amount)

Jounal entries - Novak Corp. Reversing B) Debit Credit Date Account title and explaination Oct.01 Note Receivable 2017 $1,30,000 Sales Revenue $1,30,000 To record the sale on note) Dec.31 Interest Receivable ( 130000*12%)/12*3 $ 3,900 2017 Interest Revenue $ 3,900 To record the accrual of interst revenue) an.01 Interest Revenue (130000*12%)/12*3 $ 3,900 2018 Interest Receivable $ 3,900 To record the reversal of accrual of interst revenue) 15,600 Oct.01 Cash 2018 ( 130000*12%) Interest Revenue $ 15,600 To record the collection of interest) Dec.31 Interest Receivable (130000*12%)/12*3 $ 3,900 2018 Interest Revenue $ 3,900 To record the accrual of interst revenue) an.01 Interest Revenue (130000*12%)/12*3 $ 3,900 2019 Interest Receivable $ 3,900 (To record the reversal of accrual of interst revenue 15,600 Oct.01 Cash 2019 (130000*1296) Interest Revenue S 15,600 To record the collection of interest) $1,30,000 Oct.01 Cash 2019 Note Receivable $1,30,000 To record the collection of note amount)