Prepare the entries required on Grouper Corp books

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Question - Sheffield Corp. was experiencing cash flow problems and was unable to pay its $127,000 account payable to Grouper Corp. when it fell due on September 30, 2020. Grouper agreed to substitute a one-year note for the open account. The following two options were presented to Sheffield by Grouper Corp.:

Option 1: A one-year note for $127,000 due September 30, 2021. Interest at a rate of 10% would be payable at maturity.

Option 2: A one-year non-interest-bearing note for $139,700. The implied rate of interest is 10%.

Assume that Grouper Corp. has a December 31 year end.

Assuming Sheffield Corp. chooses Option 1, prepare the entries required on Grouper Corp.'s books on September 30, 2020, December 31, 2020, and September 30, 2021.

Reference no: EM133060464

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