Outer Armour (OA) is a company that sells high quality outerwear. OA has accepted two notes receivables from customers and has a December 31, 2023 year-end.

Note Receivable A  On September 1, 2023, OA accepted a $690,000, six-month note receivable with an interest rate of 6%. Interest and the principal balance are due at maturity.

Note Receivable B On October 31, 2023, OA accepted a $395,000 note receivable with an interest rate of 4.5%. Interest is paid the first day of each following month and the principal is due at maturity on June 30, 2024.

Required

1. Outer Armour is preparing the financial statements as at December 31, 2023. Explain why interest income needs to be recorded up to December 31 even though Notes Receivable A and B do not need to be fully paid off until 2024.

2. How many months need to be accrued for Notes Receivable A and B as of December 31, 2023?

3. Prepare the adjusting journal entries to accrue the interest for Note Receivable A and Note Receivable B as at December 31, 2023.