Eastern Supply sells a variety of merchandise to retail stores on account, but it insists that customer who fails to pay an invoice when due must replace their account receivable with an interest-bearing note at an above-market interest rate. The company adjusts and closes its accounts at December 31. Among the transactions relating to notes receivable were the following

Sept. 1 -Received from a customer (Party Plus) a 9-month, 10 percent note for $75,000 in settlement of an account receivable due today.

June 1 -Collected in full the 9-month , 10 percent note receivable from Party Plus , including June 1 interest

Instructions

a. Prepare journal entries (in general journal form ) to record : (1) the receipt of the note on September 1; (2) the adjustment for interest on December 31; and (3) collection of principal and interest on June 1. ( To better illustrate the allocation of interest revenue between account- ing periods , we will assume Eastern Supply makes adjusting entries only at year -end .)

b. Assume that instead of paying the note on June 1, the customer (Party Plus ) had defaulted . Give the journal entry by Eastern Supply to record the default . Assume that Party Plus has sufficient resources that the note eventually will be collected .