Answer:
Notes Receivables 40,000 debit
Sales revenue 40,000 credit
-- to record the sale and the accepted promissory note--
interest receivables 1,000 debit
interest revenue 1,000 credit
--to adjust for interest at year-end ---
Cash 41,500 credit
Notes Receivables 40,000 credit
Interest receivables 1,000 credit
Interest revenue 500 credit
--to record the maturity and honor of the note--
If we didn't make the adjusting entr. the 2021 income will be understated by 1,000 and the 2022 overstated by 1000
as we assing the 6 month of interest from 2021 into 2022 accounting period.
Explanation:
We record the sales reveneu for the nominal. over time we are going to accrue interest.
principal x rate x time = interest
we should express rate and time in the same metric, in this case as teh rate is annual we express time in portion of a year (X month / 12)
<u><em>Adjusting entry at year-end</em></u>
40,000 x 5% x 6 /12 = 1,000 interest revenue
<u><em>At maturity:</em></u>
40,000 x 5% x 3/12 = 500 interest revenue
And we have to write-of the note receivable and the interest receivables.
