Question

(Notes Receivable Journal Entries) On December 31, 2017, 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 the receipts and interest on the following dates (prepare an amortization schedule). (Assume that the effective-interest method is used for amortization purposes.)

(a) December 31, 2017.

(b) December 31, 2018.

(c) December 31, 2019.

(d) December 31, 2020.

(e) December 31, 2021.

Short answer

Debit and credit side of journal totals$200,000.

Step-by-step solution

Definition of Interest Rate

A percentage rate that determines the finance charges to be paid to the lender by the borrower is known as interest rate.

Journal Entries

Date	Accounts and Explanation	Debit $	Credit $
31 Dec 2017	Cash	$40,000
	Note receivable	$62,049
	Service revenue		$102,049
31 Dec 2018	Cash	$20,000
	Note receivable		$20,000
	Note receivable	$6,825.39
	Interest revenue		$6,825.39
31 Dec 2019	Cash	$20,000
	Note receivable		$20,000
	Note receivable	$5,376.18
	Interest revenue		$5,376.18
31 Dec 2020	Cash	$20,000
	Note receivable		$20,000
	Note receivable	$3,767.56
	Interest revenue		$3,767.56
31 Dec 2021	Cash	$20,000
	Note receivable		$20,000
	Note receivable	$1,981.99
	Interest revenue		$1,981.99
		$200,000	$200,000

Working note: Amortization Table

Date	Cash received	Interest Revenue @ 11%	Carrying amount of note
31 Dec 2017	-	-	$62,049
31 Dec 2018	$20,000	$6,825.39	$48,874.39
31 Dec 2019	$20,000	$5,376.18	$34,250.57
31 Dec 2020	$20,000	$3,767.56	$18018.13
31 Dec 2021	$20,000	$1,981.99	$0

Note: Carrying amount is calculated by deducting the amount of cash received from the sum of the previous year’s carrying amount and interest revenue for the period.