Question

On June 30, 2021, the Esquire Company sold some merchandise to a customer for $48,000. In payment, Esquire agreed to accept a 9% note requiring the payment of interest and principal on March 31, 2022. The 9% rate is appropriate in this situation. Required: 1. Prepare journal entries to record the sale of merchandise (amit any entry that might be required for the cost of the goods sold), the December 31, 2021 interest accrual, and the March 31, 2022 collection. (Do not round intermediate calculations.) 2. If the December 31 adjusting entry for the interest accrual is not prepared, by how much will income before income taxes be over-or understated in 2021 and 2022? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Prepare journal entries to record the sale of merchandise (omit any entry that might be required for the December 31, 2021 interest accrual, and the March 31, 2022 collection. (If no entry is required for a trai journal entry required" in the first account field.) View transaction list Journal entry worksheet < Prev 2 of 3 Next > the sale of merchandise (omit any entry that might be required for the cost of the goods sold), the ial, and the March 31, 2022 collection. (If no entry is required for a transaction/event, select "No account field.) heet Record the sale of merchandise. Note: Enter debits before credits. General Journal Debit Credit Date June 30, 2021 Record the interest accrual. Note: Enter debits before credits. General Journal Debit Credit Date December 31, 2021 Brow of Record the cash collection. Note: Enter debits before credits. General Journal Debit Credit Date March 31, 2022 Required 1 Required 2 If the December 31 adjusting entry for the interest accrual is not prepared, by how mu over-or understated in 2021 and 2022? (Do not round intermediate calculations) 2021 income before income taxes would be 2022 income before income taxes would be < Required 1 entry for the interest accrual is not prepared, by how much will income before income taxes be and 2022? (Do not round intermediate calculations). would be by would be < Required 1 Required 2

Answer 1

Journal entries were prepared to record the sale of merchandise, interest accrual, and collection of the note including principal and interest. If the December 31 interest accrual is not recorded, income before income taxes will be overstated in 2021 by $2,160 and understated in 2022 by the same amount.

Step-by-step explanation:

To record the sale of merchandise on June 30, 2021, at the 9% note:

• Debit Accounts Receivable for $48,000.
• Credit Sales Revenue for $48,000.

To record the interest accrual as of December 31, 2021:

• Debit Interest Receivable for $2,160 (calculated as $48,000 x 9% x 6/12).
• Credit Interest Revenue for $2,160.

On March 31, 2022, to record the collection of the principal and interest:

• Debit Cash for $50,160 (principal of $48,000 plus interest of $2,160).
• Credit Accounts Receivable for $48,000.
• Credit Interest Revenue for $2,160.

If the December 31 adjusting entry for the interest accrual is not prepared, the income before income taxes will be overstated in 2021 by $2,160 because the interest revenue that should be recognized in 2021 has not been accounted for.

In 2022, the income before income taxes would be understated by the same amount because the interest revenue would be recognized then, although it pertains to the service provided in 2021.