Question

On March 1, 2017, Headland Company sold goods to Goosen Inc. for $714,000 in exchange for a 5-year, zero-interest-bearing note in the face amount of $1,203,132 (an inputed rate of 11%). The goods have an inventory cost on Headland’s books of $364,000.

(a) Prepare the journal entries for Headland on March 1, 2017

(b) Prepare the journal entries for Headland on December 31, 2017

Answer 1

Answer :

(a) - Preparation of Journal entries for Headland Company on March 1, 2017

General Journal

Date Particulars Debit($) Credit($)

March 1 Note Receivable A/c-----------------Dr 1,203,132

To Premium On Note Receivable A/c 4,89,132   

To Sales Revenue A/c   7,14,000

(Sold Goods against Note receivable with 5 years Interest)

Cost Of Goods Sold A/c-------------------Dr 364,000

To Inventory A/c   364,000

( Transferred Cost of Goods Sold)

(b) - Preparation Of Journal entries for Headland Company on December 31, 2017

General Journal

Date Particulars Debit($) Credit($)

December 31 Premium On Note Receivable A/c-----------------Dr 65,450

To Interest Revenue A/c 65,450

($7,14,000 * 11/100*10/12 = 65,450)

(Interest Earned on Note Receivable for 10 Months)