7-8 On October 1, 2014, Arden Farm Equipment Company sold a pecan-harvesting mac

Question

7-8

On October 1, 2014, Arden Farm Equipment Company sold a pecan-harvesting machine to Valco Brothers Farm, Inc. In lieu of a cash payment Valco Brothers Farm gave Arden a 2-year, $128,000, 10% note (a realistic rate of interest for a note of this type). The note required interest to be paid annually on October 1. Arden’s financial statements are prepared on a calendar-year basis.

Assuming Valco Brothers Farm fulfills all the terms of the note, prepare the necessary journal entries for Arden Farm Equipment Company for the entire term of the note. (Record journal entries in the order presented in the problem. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Date

Account Titles and Explanation

Debit

Credit

(To record the collection of interest)

(To record the collection of the note)

Open Show Work

Date

Account Titles and Explanation

Debit

Credit

Explanation / Answer

Ans

Date Account Titles and Explanation Debit Credit Oct 1,2014 Note Receivable                        1,28,000.00 Machinery      1,28,000.00 Dec 31,2014 Interest Receivable                              3,200.00 Interest Income            3,200.00 Oct 1,2015 Cash                            12,800.00 Interest Receivable            3,200.00 Interest Income            9,600.00 Dec 31,2015 Interest Receivable                              3,200.00 Interest Income            3,200.00 Oct 1,2016 Cash                        1,40,800.00 Note Receivable      1,28,000.00 Interest Receivable            9,600.00 Interest Income            3,200.00

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