Outer Armour (OA) is a company that sells high quality outerwear. OA has accepted two notes receivables from customers and has a December 31, 2020 year-end.

Required

1. Outer Armour is preparing the financial statements as at December 31, 2020. 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 2021.

2. How many months need to be accrued for Notes Receivable A and B as of December 31, 2020?

3. Prepare the adjusting journal entries to accrue the interest for Note Receivable A and Note Receivable B as at December 31, 2020. ?

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On September 1, 2020, OA accepted a $690,000, six-month note receivable with an interest rate of 6%. Interest and the principal balance are due at maturity. On October 31, 2020, OA accepted a $395,000 note receivable with an interest rate of 4.5%. Note Receivable A Interest is paid the first day of each following month and the principal is due at maturity on June 30, Note Receivable B 2021.