Answer:
The journal entries are as follows:
In accounts of Pronghorn, Inc.,
October 1,
Cash A/c Dr. $686,726
Interest expense A/c Dr. $36,174
   To Notes payable             $722,900
(To record the notes payable)
In accounts of Stellar National Bank,
October 1,
Notes Receivable A/c Dr. $722,900
   To cash A/c                   $686,726
   To interest revenue             $36,174
(To record the notes receivable)
Workings:
Interest expense:
= Accounts receivables × Finance change percent
= $1,205,800 × 0.03
= $36,174
Note: Interest can also entered as the finance charges.
