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Application Week 6

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On July 10, 2010, Harris Co. sold a machine to Jackson. On July 15, 2010, Harris accepted a $35,000 non-interest-bearing note from Jackson that was due July 10, 2013. Harris carried the machine on its books at a cost of $30,000 with a book value of $22,000. The fair value of the machine and the note was not known at the time of the sale; however, Harris' incremental borrowing rate was 10%.

Prepare the following journal entries on Harris’s books and submit your response in the form of a Word document, Excel spreadsheet, or Quickbooks document:

  1. Record the sale of the truck.

Note Receivable                   35,000

Accumulated depreciation    8,000

     Discount on Notes Receivable        3,592

     Equipment                                     30,000

     Gain on sale of equipment              9,408

  1. Provide the adjusting entries related to the note at December 31, 2010, December 31, 2011, and December 31, 2012.

December 31, 2010

Discount on Notes Receivable  3,148

     Interest Revenue                           3,148

December 31, 2011

Discount on Notes Receivable  2,826

     Interest Revenue                           2,826

December 31, 2012

Discount on Notes Receivable  2,543

     Interest Revenue                           2,543

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