Assume adjusting entries are made annually. On January 1, 2018, Leon’s Inc. delivers a set of kitchen appliances to a customer. The customer will pay $1000 a year for 5 years on December 31 of each year. This customer would normally be subject to 4% annual interest. The cost of the kitchen appliances bundle was $2000 to Leon’s. Prepare the journal entries for Smith on the dates given. Show all calculations. January 1, 2018, June 30, 2018 (year-end) Dec 31, 2018 (payment) On Jan 1, 2018, We Paint Inc. sold and provided a house painting service to a customer under a special promotion: “Don’t pay for 2 years with only 2% interest paid each year!!”. 

The customer will pay $1000 on Jan 1, 2020, for the services plus (2% “interest” per year) $20 each Dec 31. However, the normal borrowing rate for this customer based on their risk profile would have been 6% (ie. the market rate). 

Required

Prepare the journal entries (assuming the effective interest method): Jan 1, 2018: provided service to customer: Dec 31, 2018: payment of interest and year end adjustments: Dec 31, 2019: payment of interest and year end adjustments: Jan 1, 2020, customer pays note: What is the interest revenue for 2018? What is the note receivable balance at Dec 31, 2018? What is the note receivable balance at Dec 31, 2019?

Answer rating: 100% (QA)

1 Date General Journal Debit Credit Jan 1 2018 Accounts receivable 4452 Sales revenue 4452 To record sales on credit Jan 1 2018 Cost of goods sold 200... View the full answer