RRR Company sells servers. A server is a piece of computer hardware or software that

provides functionality for other programs or devices, called clients1

You, Tony Kani, have been hired as a full-time accountant, reporting to the controller of

RRR Company, Marin Saviolini, and are excited to prove yourself by demonstrating your

competence acquired during your undergraduate Bachelor of Commerce degree at York

University and your 2021 summer internship.

RRR Company has adopted IFRS for financial reporting purposes but is not a public

company. The company is owned by Ratish Harmoni, the original founder and two friends

Meryl Gold and Yukari Sulim. The senior management team does not consist of any of the

owners. The Chief Executive Officer (CEO) and Chief Financial Officer (CFO) both have their

compensation tied by company performance since they are awarded a bonus based on non

consolidated financial statement results. If revenues exceed a $30M threshold each

financial year, a bonus payout is computed and paid out. The draft financial statements

reflect revenues at $37.7M. Therefore, the CEO and CFO are looking forward to receiving

their 10% bonus for the December 31, 2021, yearend.

RRR Companys total debt at yearend is $750,000 at an annual interest rate of 8%.

It is now January 14, 2022, and the 2021 yearend financial statements are being finalized.

You have settled into your new role and the controller asked you to analyze transactions,

discuss financial reporting treatment and provide journal entries for several issues and

summarize in a professional report. All the information you require for your analysis has

been provided in an email received by the controller below.

A few customers have been having difficulty paying and their accounts are currently overdue. We believe they are only temporarily struggling. They are long-time customers, and we trust they will pay when they can. We dont want to lose them as customers, so we want to be sensitive to their troubles. We have therefore converted the receivables into notes as of Jan 1, 2022. The notes allow customers a two-year period to pay with an interest rate of 4% even though the current market rate is 8%. The previous accountant reclassified the $500,000 of accounts receivable as a note receivable on the date of conversion since we are sure they will pay. Interest is due at the end of each year.

I want to know:

• Accounts Receivable and Notes Receivable Recognition

• Journal entries for conversion and interest payment