Question

Exercise 7-14 Note receivable [LO7-7] On June 30, 2018, the Esquire Company sold some merchandise to a customer for $64,000. In payment, Esquire agreed to accept a 7% note requiring the payment of interest and principal on March 31, 2019. The 7% rate is appropriate in this situation. 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), the December 31, 2018 interest accrual, and the March 31, 2019 collection 2. If the December 31 adjusting entry for the interest accrual is not prepared, by how much will income before income taxes be over-or understated in 2018 and 2019? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Prepare journal entries to record the sale of merchandise (omit any entry that might be required for the cost sold), the December 31, 2018 interest accrual, and the March 31, 2019 collection. (If no entry is required for transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet 3 Record the sale of merchandise. Note: Enter debits before credits. Date June 30, 2018 General Journal DebitCredit

Answer 1

Journal entries:
Date	Accounts title and explanations					Debit $	Credit $
30.06.8	Notes receivable Dr.					64000
	Sales revenue						64000
31.12.18	Interest receivable Dr.					2240
	Interest revenue (64000*7%*6/12)						2240
31.03.19	Cash account Dr.					67360
	Notes receivable						64000
	Interest receivable						2240
	Interest revenue (64000*7%*3/12)						1120
When Adjusting entry is ommitted:
Then,
Net income before tatx for 2018 is understated by $ 2240
Net income before tax for 2019 is overstated by $ 2240