Exercise 7-15 Noninterest-bearing note receivable [LO7-7 On June 30, 2018, the E

Question

Exercise 7-15 Noninterest-bearing note receivable [LO7-7 On June 30, 2018, the Esquire Company sold some merchandise to a customer for $38.000 and agreed to accept as payment a noninterest-bearing note with an 6% discount rate requiring the payment of S38,000 on March 3, 20a The Strate is appropriate n 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 ned) Journal entry worksheet 5 8

Explanation / Answer

1.

The journal entry to record the sale of merchandise will be prepared as follows:

The journal entry to record interest accrual on December 31 will be prepared as follows:

The journal entry to record interest accrual on March 31 will be prepared as follows:

The journal entry to record cash collection on March 31 will be prepared as follows:

2.

Effective interest rate will be calculated as follows:

Effective interest rate

= (Interest for nine months/Selling price) x 12/9

= ($1,710/$36,290) x 12/9

= 0.0628

= 6.28%

Date Account Titles and Explanation Debit Credit Jun. 30, 2018 Notes Receivable 38000       Discount on Notes Receivable ($38,000 x 6% x 9/12) 1710       Sales Revenue 36290

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