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On November 1,2017,Salem Corporation sold land priced at $900,000 in exchange for a 6%,six-month note receivable.
-The journal entry made by Salem to record this transaction on November 1,2017,includes:
A)A debit to Notes Receivable of $927,000.
B)A debit to Interest Receivable of $27,000.
C)A credit to Interest Revenue of $27,000.
D)A debit to Notes Receivable of $900,000.

Question

Quizplus · Accepted Answer

The journal entry to record the transaction would include a debit to Notes Receivable for the amount of the land sold, which is $900,000. Since it is a six-month note receivable with a 6% interest rate, the interest revenue of $27,000 would be recognized when the note is collected at maturity, not at the time of the sale. Therefore, there would be no debit to Interest Receivable or credit to Interest Revenue on November 1, 2017. The correct entry is:
Debit: Notes Receivable $900,000
Credit: Land $900,000

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