Question

On December 31, 2014, Oakbrook Inc. rendered services to Beghun Corporation at an agreed price of $102,049, accepting $40,000 down and agreeing to accept the balance in four equal installments of $20,000 receivable each December 31. An assumed interest rate of 11% is imputed.

Instructions:
Prepare the entries that would be recorded by Oakbrook Inc. for the sale and for the receipts and interest on the following dates. (Assume that the effective-interest method is used for amortization purposes.)
(a) December 31, 2014.
(b) December 31, 2016.
(c) December 31, 2018.
(d) December 31, 2015.
(e) December 31, 2017.

Answer 1

(a) December 31, 2014.

Dr Cash 40,000

Dr Notes receivable 80,000

Cr Service revenue 102,049

Cr Discount on notes receivable 17,951

(b) December 31, 2016.

Dr Cash 20,000

Dr Discount on notes receivable 5,376

Cr Notes receivable 20,000

Cr Interest revenue 5,376

(c) December 31, 2018.

Dr Cash 20,000

Dr Discount on notes receivable 1,982

Cr Notes receivable 20,000

Cr Interest revenue 1,982

(d) December 31, 2015.

Dr Cash 20,000

Dr Discount on notes receivable 6,825

Cr Notes receivable 20,000

Cr Interest revenue 6,825

(e) December 31, 2017.

Dr Cash 20,000

Dr Discount on notes receivable 3,768

Cr Notes receivable 20,000

Cr Interest revenue 3,768