The unadjusted notes receivable balance as at December 31, 20x5 is $3,163,059. During 20x5, two notes receivable were created: $2,000,000 Sale of inventory on January 2, 20x5 on the following terms: interest of 2% payable on December 31 of each year for three years with the principal amount of $2,000,000 payable on December 31, 20x7. The cash price of the inventory would have been $1,786,000. The entry to record the transaction was to debit Notes Receivable and credit revenue. The interest payment of $40,000 was received on December 31 and credited to revenue. $1,500,000 Sale of inventory on January 2, 20x5 on the following terms: blended payments of principal and interest of 4% over 5 years with the first payment due on December 31, 20x5. The customer’s incremental borrowing rate is 8%. Floyd’s incremental borrowing rate is 6%. The entry to record the initial transaction was to debit Notes Receivable and credit revenue for $1,500,000. The first payment was received at year-end and was credited to the Notes Receivable Account. 

Required - Prepare the adjusting journal entries to adjust the notes receivable/revenue accounts at December 31, 20x5.

Answer rating: 100% (QA)

Initial entries for the sales are correctly recorded Since the interest received were wr... View the full answer