On June 30, 2018, the Esquire Company sold some merchandise to a customer for $4

Question

On June 30, 2018, the Esquire Company sold some merchandise to a customer for $46,000 and agreed to accept as payment a noninterest-bearing note with an 12% discount rate requiring the payment of $46,000 on March 31, 2019. The 12% rate is appropriate in this situation. 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), the December 31, 2018 interest accrual, and the March 31, 2019 collection.
2. What is the effective interest rate on the note?

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), the December 31, 2018 interest accrual, and the March 31, 2019 collection. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

1Record the sale of merchandise.

2 Record the interest accrual on December 31.

3 Record the interest accrual on March 31.

4 Record the cash collection.

What is the effective interest rate on the note? (Round your intermediate calculations and the final percentage answer to 3 decimal places.)

Explanation / Answer

$ Sales value                      46,000 Discount at 12 %                        5,520 Accounts receivable                      40,480 Period of note from Jun 30, 2018 till march 31,2019 = 9 months Effective interest rate = ($ 5,520/ $ 46,000) x (12/9) x 100 = 16% Journal Entries Date Account's tittle Debit $ Credit $ 2018 30-Jun Accounts receivable                      46,000 Sales revenue                  46,000 ( Record of sales at a term non-interest bearing note with 12% discount ) 31-Dec Interest expenses ( $ 46,000 x 16% x 6/12)                        3,680 Account's receivable                    3,680 ( Interest accrued for 6 months and reduced from accounts receivable) 2019 31-Mar Interest expenses ( $ 46,000 x 16% x 3/12)                        1,840 Account's receivable                    1,840 ( Interest accrued for 3 months and reduced from accounts receivable) 31-Mar Cash                      40,480 Accounts receivable                  40,480 ( Balance after discount is received from the customer)

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