Recording Entries for Long-Term Note Receivable: Effective Interest Method On January 1 of Year 1. Jacobs Company sells land in return for a $88.000 note, issued by Andress Company. The note is a $88.000, 8%, annual interest-bearing note. Andress agrees to repay the $88.000 proceeds on December 31 of Year 2. The prevailing interest rate on similar notes is 11%. Assume that the cost of the land is equal to the fair value of the note. Required • Note: Round answers to the nearest whole dollar. a. Prepare entries for Jacobs on (1) January 1 of Year 1 for the sale of land and (2) December 31 of Year 1 for interest received on the note. Use the effective interest method to amortize the discount. Date Jan. 1, Year 1 Note Receivable Account Name Dr. Cr. Discount on Note Receivable Land To record sale of the land. Dec. 31, Year 1 Cash Dec. 31, Year 2 Discount on Note Receivable Interest Revenue To record interest on note Check To record interest on note V To record settlement of note V V V V b. Prepare entries on December 31 of Year 2 to record (1) interest received on the note and (2) the settlement of the note. Date Account Name Dr. Cr. Dec. 31, Year 2 V V V 88,000 0 0 V 7,040 0 0 7,040 0 0 0✔ 61,481 x 26,519 x 0 0 0✔ 0x 2,917 * ox 0x 0x 0x 0x
Recording Entries for Long-Term Note Receivable: Effective Interest Method On January 1 of Year 1. Jacobs Company sells land in return for a $88.000 note, issued by Andress Company. The note is a $88.000, 8%, annual interest-bearing note. Andress agrees to repay the $88.000 proceeds on December 31 of Year 2. The prevailing interest rate on similar notes is 11%. Assume that the cost of the land is equal to the fair value of the note. Required • Note: Round answers to the nearest whole dollar. a. Prepare entries for Jacobs on (1) January 1 of Year 1 for the sale of land and (2) December 31 of Year 1 for interest received on the note. Use the effective interest method to amortize the discount. Date Jan. 1, Year 1 Note Receivable Account Name Dr. Cr. Discount on Note Receivable Land To record sale of the land. Dec. 31, Year 1 Cash Dec. 31, Year 2 Discount on Note Receivable Interest Revenue To record interest on note Check To record interest on note V To record settlement of note V V V V b. Prepare entries on December 31 of Year 2 to record (1) interest received on the note and (2) the settlement of the note. Date Account Name Dr. Cr. Dec. 31, Year 2 V V V 88,000 0 0 V 7,040 0 0 7,040 0 0 0✔ 61,481 x 26,519 x 0 0 0✔ 0x 2,917 * ox 0x 0x 0x 0x
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Recording Entries for Long-Term Note Receivable; Effective Interest Method
On January 1 of Year 1, Jacobs Company sells land in return for a $88,000 note, issued by Andress Company. The note is a $88,000, 8%, annual interest-bearing note. Andress agrees to repay the $88,000 proceeds on December 31 of Year 2. The prevailing interest rate on similar notes
is 11%. Assume that the cost of the land is equal to the fair value of the note.
Required
• Note: Round answers to the nearest whole dollar.
a. Prepare entries for Jacobs on (1) January 1 of Year 1 for the sale of land and (2) December 31 of Year 1 for interest received on the note. Use the effective interest method to amortize the discount.
Date
Account Name
Dr.
Cr.
Jan. 1, Year 1
Dec. 31, Year 1 Cash
Date
Dec. 31, Year 2
Note Receivable
Discount on Note Receivable
Land
To record sale of the land.
Dec. 31, Year 2
Check
Discount on Note Receivable
Interest Revenue
To record interest on note
To record interest on note
V
To record settlement of note
V
V
V
b. Prepare entries on December 31 of Year 2 to record (1) interest received on the note and (2) the settlement of the note.
Account Name
Dr.
Cr.
V
V
88,000
V
0
0
7,040
0
0
7,040
0
0
0✓
61,481 x
26,519 *
0
0
0
0 ✓
0 x
2,917 x
0x
0x
0x
0x
0x
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