On November 1, 2015, Sokos Inc. accepted a three-month, 6%, $40,000 note from Malmo Inc. in settlement of its account. Interest is due on the first day of each month, starting December 1. Both companies' year ends are December 31.

Instructions

(a) Prepare all journal entries for Sokos over the term of the note. Assume that the note is collected in full on the maturity date.

(b) Prepare all journal entries for Malmo over the term of the note. Assume that the note is paid in full on the maturity date.

(c) Assume that instead of honouring the note at maturity, Malmo dishonours it. Prepare the necessary journal entry on Sokos's books at the maturity date, February 1, 2016, assuming that eventual collection of the note is (1) expected, and (2) not expected. Interest was last paid by Malmo on January 1.