Smithfield Farms purchased a combine from John Deere for $175,000 on January 2, 2014. Smithfield paid $25,000 in cash and signed an installment note calling for five annual payments of $39,569.58 beginning on December 31, 2014. Deere based the payments on a 10% rate of interest. Smithfield made the first payment, but a failed harvest in 2015 left it unable to make the upcoming payment. Deere agreed to repossess the combine, which had a market value of $132,000 on December 31, 2015, and cancel the note. Deere accrued interest on the loan for 2015 prior to canceling the note.

Prepare the journal entry John Deere would make on December 31, 2015, to record the settlement.

  • CreatedSeptember 10, 2014
  • Files Included
Post your question