Question
Assume adjusting entries are made annually. On January 1, 2018, Leons Inc. delivers a set of kitchen appliances to a customer. The customer will pay
Assume adjusting entries are made annually. On January 1, 2018, Leon’s Inc. delivers a set of kitchen appliances to a customer. The customer will pay $1000 a year for 5 years on December 31 of each year. This customer would normally be subject to 4% annual interest. The cost of the kitchen appliances bundle was $2000 to Leon’s. Prepare the journal entries for Smith on the dates given. Show all calculations. January 1, 2018, June 30, 2018 (year-end) Dec 31, 2018 (payment) On Jan 1, 2018, We Paint Inc. sold and provided a house painting service to a customer under a special promotion: “Don’t pay for 2 years with only 2% interest paid each year!!”.
The customer will pay $1000 on Jan 1, 2020, for the services plus (2% “interest” per year) $20 each Dec 31. However, the normal borrowing rate for this customer based on their risk profile would have been 6% (ie. the market rate).
Required
Prepare the journal entries (assuming the effective interest method): Jan 1, 2018: provided service to customer: Dec 31, 2018: payment of interest and year end adjustments: Dec 31, 2019: payment of interest and year end adjustments: Jan 1, 2020, customer pays note: What is the interest revenue for 2018? What is the note receivable balance at Dec 31, 2018? What is the note receivable balance at Dec 31, 2019?
Step by Step Solution
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Step: 1
1 Date General Journal Debit Credit Jan 1 2018 Accounts receivable 4452 Sales revenue 4452 To record sales on credit Jan 1 2018 Cost of goods sold 200...Get Instant Access to Expert-Tailored Solutions
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Step: 2
Step: 3
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