Prepare the journal entry John Deere to record the settlement
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Smithfield Farms purchased a combine from John Deere for $175,000 on January 2, 2005. Smithfield paid $25,000 in cash and signed an installment note calling for five annual payments of $39,569.58 beginning on December 31, 2005. Deere based the payments on a 10% rate of interest. Smithfield made the first payment, but a failed harvest in 2006 left them unable to make the upcoming payments. Deere agreed to repossess the combine- which had a market value of $132,000- on December 31, 2006- and cancel the note. Deere accrued interest on the loan for 2006 prior to canceling the note.
Required:
Prepare the journal entry John Deere would make on December 31, 2006 to record the settlement.
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Solution Summary
This solution provides a detailed step by step explanation of the given accounting problem involving preparing a journal entry.
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