Answer:
Assumption: 6% rate has been taken to be on per annum basis and the question has been solved accordingly.
Following would be the journal entries to record the transaction:
On date of transaction:
June 30 Notes Receivable A/C Dr.$42,000
To Sales $42,000
(Being a note received against goods sold recorded)
Adjusting entry:
Dec 31 Interest Receivable Dr. $ 1,260
To Interest Revenue A/C $1260
(Being 6 months interest due recorded)
On due date of notes receivable
March 31 Cash A/C Dr. 43,890
To Notes Receivable A/C $42000
To Interest Revenue A/C $1890
(Being payment for notes receivable received along with interest recorded)
2. If the adjusting entry for interest accrual is not recorded, the income for 2018 would be understated by $1260 and income for 2019 would be overstated by $1260.
