On October 1, 2014, Healy Farm Equipment Corp. sold a harvesting machine to Homestead industries. Instead of a cash payment, Homestead Industries gave Healy Farm Equipment a $150,000, two-year, 10% note; 10% is a realistic rate for a note of this type. The note required interest to be paid annually on October 1, beginning October 1, 2015. Healy Farm Equipment's financial statements are prepared on a calendar-year basis.
Instructions
(a) Assuming that no reversing entries are used and that Homestead Industries fulfills all the terms of the note, prepare the necessary journal entries for Healy Farm Equipment Corp. for the entire term of the note.
(b) Repeat the journal entries under the assumption that Healy Farm Equipment Corp. uses reversing entries.