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Prepare adjusting journal entry to adjust notes receivable

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Reference no: EM132675426

The unadjusted notes receivable balance as at December 31, 20x5 is $3,163,059. During 20x5, two notes receivable were created:

$2,000,000 Sale of inventory on January 2, 20x5 on the following terms:

  • interest of 2% payable on December 31 of each year for three years with the principal amount of $2,000,000 payable on December 31, 20x7. The cash price of the inventory would have been $1,786,000. The entry to record the transaction was to debit
  • Notes Receivable and credit revenue. The interest payment of $40,000 was received on December 31 and credited to revenue. $1,500,000

Sale of inventory on January 2, 20x5 on the following terms:

blended payments of principal and interest of 4% over 5 years with the first payment due on December 31, 20x5. The customer's incremental borrowing rate is 8%. Floyd's incremental borrowing rate is 6%. The entry to record the initial transaction was to debit Notes Receivable and credit revenue for $1,500,000. The first payment was received at year-end and was credited to the Notes Receivable Account.

Required -

Problem 1: Prepare the adjusting journal entries to adjust the notes receivable/revenue accounts at December 31, 20x5.

Reference no: EM132675426

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