ABC sold a piece of equipment to XYZ on August 1, 2013, for $800,000. ABC agreed

Question

ABC sold a piece of equipment to XYZ on August 1, 2013, for $800,000. ABC agreed to accept a 7-month, 7% note with interest due on its maturity date. ABC only prepares financial statements at its calendar year-end. Prepare journal entries for the following events: 1) equipment sale on August 1, 2013. Ignore cost of goods sold and the reduction of inventory. 2) year-end interest accrual on December 31, 2013 3)the collection of the notes receivable on its maturity date on February 1, 2014 4) Assume that ABC sells the note receivable on January 1, 2014 for $810,000. Record the journal entry for the sale. Assume the transaction qualifies as a sale

Explanation / Answer

(1) Sale of equipment

Note Recievable A/c Dr. $800000

To Equipment A/c $800000

(2) Accrual of interest

Note recievable A/c Dr. $23333

To Interest revenue A/c $23333

(3) Collection of note receivable

     Cash A/c Dr. $832667

To Note recievable A/c $823333

To interest revenue A/c $9334

(4) For sale of note recievable

Cash A/c Dr. $810000

Loss on sale of note A/c Dr. $13333

To Note recievable A/c $823333

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