On January 10, 2019, Metlock, Inc. sold merchandise on account to Monty Co. for $20,900, n/30. On February 9, Monty Co. gave Metlock, Inc. a 10% promissory note in settlement of this account. Prepare the journal entry to record the sale and the settlement of the account receivable. (Omit cost of goods sold entries.) (Credit account titles are automatically indented when amount is entered. Do not indent manually. Record journal entries in the order presented in the problem.)

The required journals to be recorded are as follows:

On January 10:

Debit Accounts receivable $20,900

Credit Sales revenue (credit) $20,900

(To recognize account receivables on merchandise sale)

On February 9:

Debit Notes receivable $20,900

Credit Accounts receivable $20,900

(To reclassify accounts receivable to notes receivable)

On March 9:

Debit Interest receivable $174.17

Credit Interest revenue $174.17

(To record interest on notes receivables [$20,900 x 10%/12])

Explanation:

First, on January 10, when Metlock Inc. sold merchandise on account to Monty Co., Metlock has to recognize an accounts receivable because the sales transaction was on account. However, since Monty gave a 10% promissory note, Metlock has to record the same by reclassifying the initially recognized accounts receivable to notes receivable, since that is what the company is expecting. The 10% on the promissory notes means Metlock would be recognizing the amount in its interest revenue.