On June 30, 2021, the Esquire Company sold some merchandise to a customer for $66,000. In payment, Esquire agreed to accept a 8% note requiring the payment of interest and principal on March 31, 2022. The 8% rate is appropriate in this situation. Required: 1. Prepare journal entries to record the sale of merchandise (omit any entry that might be required for the cost of the goods sold), the December 31, 2021 interest accrual, and the March 31, 2022 collection. (Do not round intermediate calculations.) 2. If the December 31 adjusting entry for the interest accrual is not prepared, by how much will income before income taxes be over-or understated in 2021 and 2022

Esquire Company

Date Particulars Debit Credit

30 June Accounts Receivable $ 66,000

Sales $ 66,000

On June 30, 2021, the Esquire Company sold some merchandise to a customer for $66,000.

31 Mar Note Receivable $ 66,000

Account Receivable $ 66,000

Esquire agreed to accept a 8% note requiring the payment of interest and principal on March 31, 2022.

31 December Notes Receivable $ 66,000

Interest Receivable $ 3960

Sales $ 66,000

Interest Revenue $ 3960

To record the accrued interest earned. $66,000*8% = $ 5280. As it is for nine months the amount would be $ (5280/12) * 9 = $ 3960

31 March Cash $ 71,280

Interest Income $ 5280

Notes Receivable $ 66,000

March 31, 2022 collection of Note receivable and interest accrued.

2. The income will be understated by an amount of $ 3960 in 2021 if an adjusting entry is not made on Dec 31 of accrual interest.

The adjusting entry on 31st December 2022 of the interest accrual will not be required as interest has been received on March 31st 2022.

The income will be understated by $ 5280 in 2022 if an adjusting entry is not made on Mar 31st 2022 of the interest received.