Question

Exercise 7-19 (Algo) Noninterest-bearing note receivable (LO7-7] points On June 30, 2021, the Esquire Company sold merchandise to a customer and accepted a noninterest-bearing note in exchange. The note requires payment of $47,000 on March 31, 2022. The fair value of the merchandise exchanged is $44,180. Esquire views the financing component of this contract as significant Skipped Required: 1. Prepare journal entries to record the sale of merchandise (omit any entry that might be required for the cost of the goods sold), any December 31, 2021 interest accrual, and the March 31, 2022 collection 2. What is the effective interest rate on the note? eBook Complete this question by entering your answers in the tabs below. Print Required 1 Required 2 References Prepare journal entries to record the sale of merchandise (omit any entry that might be required for the cost of the goods December 31, 2021 interest accrual, and the March 31, 2022 collection. (If no entry is required for a transaction/event, se journal entry required" in the first account field. Do not round intermediate calculations.) View transaction list Journal entry worksheet < (1 2 3 4 Record the sale of merchandise. Note: Enter debits before credits

Answer 1

Journal Entries Date Account Title and Explaination Debit Credit Post. Ref. $ Jun.30 2021 44,180.00 2,820.00 Notes Receivable Discount on Notes Receivable Sales Revenue (To record Sale of Merchandise by receiving non interest bearing note) $ 47,000.00 1,880.00 Dec.31 Interest Receivable ($2820/9months x 6months) 2021 Discount on Notes Receivable (To record Accrued interest on Notes Receivable) $ 1,880.00 $ 47,000.00 Mar.31 Cash Interest Receivable Discount on Notes Receivable ($2820/9monthsx3months) Notes Receivable (To record Collection of Cash) 1,880.00 940.00 44,180.00

Answer to Requirement 2: Calculation of Effective Interest Rate: Effective interest Rate = (Maturity Proceeds on Note - Fair Value of Exchanged Merchandise)/Fair Value of Exchanged Merchandise x 12months/Period of Note = ($47,000 - $44,180)/$44,180 x 12 Months/9 Months = 8.51%