During 2013, Thomas Company entered into two transactions involving promissory notes and properly recorded each transaction.
1. On November 1, 2013, it purchased land at a cost of $8,000. It made a $2,000 down payment and signed a note payable agreeing to pay the $6,000 balance in 6 months plus interest at an annual rate of 10%.
2. On December 1, 2013, it accepted a $4,200, 3-month, 12% (annual interest rate) note receivable from a customer for the sale of merchandise. On December 31, 2013, Thomas made the following related adjustments:
Interest Expense .....................100
Interest Payable ................................100
Interest Receivable ....................42
Interest Revenue ................................42
Required:
1. Assuming that Thomas uses reversing entries, prepare journal entries to record:
a. the January 1, 2014, reversing entries
b. the March 1, 2014, $4,326 collection of the note receivable
c. the May 1, 2014, $6,300 payment of the note payable
2. Assuming instead that Thomas does not use reversing entries, prepare journal entries to record the collection of the note receivable and the payment of the note payable.