Problem 1

There was a sale of inventory with a $1,250,000 note receivable created on January 2, 2020 on the following terms:

Blended payments of principal and interest of 4% over 6 years with the first payment due on December 31, 2020. The customer's incremental borrowing rate is 7%. The company's incremental borrowing rate is 5%. The entry to record the initial transaction was to debit Notes Receivable and credit revenue for $1,250,000. The first payment was received at yearend and was credited to the Notes Receivable Account

Required: Prepare the adjusting journal entries to adjust the notes receivable/revenue account at December 31, 2020.