P7-8 (Notes Receivable with Realistic Interest Rate)

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Intermediate Accounting, 13th Edition

by Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield

March 2009, ©2010

ISBN 978-0-470-37494-8

P7-8 (Notes Receivable with Realistic Interest Rate) On October 1, 2010, Arden Farm Equipment Company sold a pecan-harvesting machine to Valco Brothers Farm, Inc. In lieu of cash payment Valco Borthers Farm gave Arden a 2-year, $120,000, 8% note (a realistic rate of interest for a note of this type). The note required interest to be paid annually on October 1. Arden’s financial statements are prepared on a calendar-year basis.

Instructions

Assuming Valco Brothers Farm fulfills all the terms of the note, prepare the necessary journal entries for Arden Farm Equipment Company for the entire term of the note