On October 1, 2017, Ivanhoe Equipment Company sold a pecan-harvesting machine to

Question

On October 1, 2017, Ivanhoe 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, $162,400, 10% note (a realistic rate of interest for a note of this type). The note required interest to be paid annually on October 1. Ivanhoe’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 Ivanhoe Equipment Company for the entire term of the note. Assume that reversing entries are not made on January 1, 2018 and January 1, 2019.

Explanation / Answer

Journal Entries Date Partculars Debit($) Credit ($) October 1, 2017 Notes Receivable 162,400 Sales Revenue 162,400 ( To record sales made & note received) December 31, 2017 Interest Receivable [$162,400 * 10 %* 3 /12]   4,060 Interest Revenue 4,060 ( To record interest on note receivable) October 1, 2018 Cash [$162,400 * 10 %] 16,240 Interest Receivable 4,060 Interest Revenue 12,180 [ To record receipt of interest on note] December 31, 2018 Interest Receivable 4,060 Interest Revenue 4,060 (To record interest on note receivable) October 1, 2019 Cash 16,240 Interest Receivable 4,060 Interest Revenue 12,180 [ To record receipt of interest on note] October 1, 2019 Cash 162,400 Notes Receivable 162,400 [ To record receipt of maturity value of note]

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