Answer:
Esquire Company
Date Particulars Debit Credit
30 June Accounts Receivable $ 66,000
Sales $ 66,000
On June 30, 2021, the Esquire Company sold some merchandise to a customer for $66,000.
31 Mar Note Receivable $ 66,000
Account Receivable $ 66,000
Esquire agreed to accept a 8% note requiring the payment of interest and principal on March 31, 2022.
31 December Notes Receivable $ 66,000
Interest Receivable $ 3960
Sales $ 66,000
Interest Revenue $ 3960
To record the accrued interest earned. $66,000*8%= $ 5280. As it is for nine months the amount would be $ (5280/12)*9= $ 3960
31 March Cash $ 71,280
Interest Income $ 5280
Notes Receivable $ 66,000
March 31, 2022 collection of Note receivable and interest accrued.
2. The income will be understated by an amount of $ 3960 in 2021 if an adjusting entry is not made on Dec 31 of accrual interest.
The adjusting entry on 31st December 2022 of the interest accrual will not be required as interest has been received on March 31st 2022.
The income will be understated by $ 5280 in 2022 if an adjusting entry is not made on Mar 31st 2022 of the interest received.
