Final answer:
The question involves the creation of journal entries for a note receivable issued by Stridewell Wholesale Shoe Company. Entries are needed for the initial note issuance on January 1, 2021, interest accrual on December 31, 2021, and the final payment, including the second year's interest, on December 31, 2022.
Step-by-step explanation:
When Stridewell Wholesale Shoe Company sells shoes to Harmon Sporting Goods and accepts a $700,000 note at a 12% interest rate, we need to make accounting entries for the issuance of the note and the subsequent interest accruals.
January 1, 2021
- Debit Accounts Receivable: $700,000
- Credit Notes Receivable: $700,000
The initial entry reflects the exchange of shoes for a note receivable.
December 31, 2021
- Debit Interest Receivable: $84,000 (which is $700,000 x 12%)
- Credit Interest Revenue: $84,000
This entry accounts for the interest accrued for one year at 12%.
December 31, 2022
- Debit Cash: $784,000 (which is the principal plus interest for the second year)
- Credit Notes Receivable: $700,000
- Credit Interest Revenue: $84,000
On the maturity date, the note and the second year's interest are realized in cash.