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 $48,000. In payment, Esquire agreed to accept a 9% note requiring the payment of interest and principal on March 31, 2019, The 9% rate is appropriate in this situation. 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. If the December 31 adjusting entry for the interest accrual is not prepared, by how much will income before income taxes be over-or understated in 2018 and 2019? Complete this question by entering your answers in the tabs below Required 1Required 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.) View transaction list Journal entry worksheet Record the sale of merchandise Note: Enter debits before credits. Date General Journal DebitCredit Prev 4 of 9 Next>

Explanation / Answer

Ans. jounral entry for selling of goods against 9% note

jun 30, 2018        

                           9% note Receivable A/c Dr.          $48000

                                  To Sales                                    $48000

31, Dec. 2018

                          9% note Receivable A/c Dr.               $2160

                               To Accured Interest A/c                        $2160

                         (Accured Interest Recognized)

            

                             Accured interest A/c Dr.    $2160

   To Profit and Loss A/c    $2160      

                          (Accured Interest income transfered to profit and Loss account)

31st March 2019

                                Cash/Bank A/c                        $51240

                                  To 9% note Receivable A/c                         $50160

                                  To 9% Accured Interest A/c                        $1080

                (Accured Interest and principal amt. Received on March ending 2019, and 3 month intt jan to march)

b. if accured interest not recorded in the year of 31st Dec 2018, income before tax understated in the year of 2018 is $2160 and income overstated in the year of 2019 is $2160

Note: Calculation of Accured interest income

Selling date Jun 30 2018 for $48000 and rate of interest is 9%

Jun 30 to 31 Dec 2018 is 6month, interest is (48000X9%X6/12) =$2160

for jan 2019 to 31st march 2019 interest income 48000X9%X3/12= $1080

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