Summary Business Accounting

Question:

On June 30, 2013, the Esquire Company sold some merchandise to a customer for $30,000. In payment,

Esquire agreed to accept a 6% note requiring the payment of interest and principal on March 31, 2014.

The 6% 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, 2013 interest accrual, and the March 31, 2014 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 2013 and 2014?



Answer:



Requirement 1




June 30, 2013

Note receivable...................................................................................... 30,000

Sales revenue.................................................................................... 30,000



December 31, 2013

Interest receivable.................................................................................. 900

Interest revenue ($30,000 x 6% x 6/12)............................................ 900




March 31, 2014