Question

Preparing Entries and Interest Schedule for Long-Term Note Receivable; Effective Interest Method On April 1, 2020, Mountain Company sold merchandise and received a $21,600, three-year, noninterest-bearing note. The market rate is 8%. Mountain Company has a March 31 year-end. The company uses the effective interest method to amortize any discount. Required Prepare all entries for Mountain Company over the note's term, including year-end adjustments. Note: Round amounts to the nearest whole dollar. Note: If multiple credits are required, list accounts in alphabetical order. Date Account Name Dr. Cr. April 1, 2020 Mar. 31, 2021 Mar. 31, 2022 Mar. 31, 2023 To record interest on note Mar. 31, 2023 To record settlement of note Check

Answer 1

Solution:

Present value of note = $21,600 * PV factor at 8% for 3rd period

= $21,600 * 0.79383 = $17,147

Journal Entries - Mountain company
Date	Particulars	Debit	Credit
1-Apr-20	Note receivables Dr	$21,600.00
	To Sales revenue		$17,147.00
	To Discount on note receivables		$4,453.00
	(To record merchandise sold)
31-Mar-21	Discount on note receivables Dr ($17,147*8%)	$1,372.00
	To Interest revenue		$1,372.00
	(To record amortization of discount)
31-Mar-22	Discount on note receivables Dr ($18,519*8%)	$1,482.00
	To Interest revenue		$1,482.00
	(To record amortization of discount)
31-Mar-23	Discount on note receivables Dr ($20,001*8%)	$1,600.00
	To Interest revenue		$1,600.00
	(To record amortization of discount)
31-Mar-23	Cash Dr	$21,600.00
	To Note receivables		$21,600.00
	(To record collection at maturity)