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Prepare the journal entry for the year-end adjustment

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Question - On September 1, 2016, The Highlander Truck Company sold two heavy duty trucks to Zebra Corporation for $160,000. Highlander's cost for the trucks was $135,000. Zebra Corporation signed a seven- month note for the purchase. The note is due on April 1, 2017 with an annual interest rate of 6%. The Highlander Truck Company has a December 31 year-end and uses a perpetual inventory system. On April 1, 2017, Zebra dishonoured the note because the company was going through a tough period and could not afford to pay the balanced owed. The Highlander Truck Company believes that Zebra Corporation will eventually make the payment when the economy improves.

Prepare the journal entry for the year-end adjustment, if required (would you please explain how to calculate interest rate).

Reference no: EM132587277

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