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Chapter 8: Q11SE (page 468)

Question: On December 1, Kyle Corporation accepted a 60-day, 9%, $12,000 note receivable from J. Michael in exchange for his account receivable.

Requirements

1. Journalize the transaction on December 1.

2. Journalize the adjusting entry needed on December 31 to accrue interest revenue. Round to the nearest dollar.

3. Journalize the collection of the principal and interest at maturity. Specify the date. Round to the nearest dollar.

Short Answer

Expert verified

Answer:

  1. The notes receivable-J. Michael account is debited and accounts receivable-J. Michael is credited with $12,000.
  2. Interest receivable is debited and interest revenue is credited by $89.
  3. Cash account is debited by $12,178, and notes receivable- J. Michael is credited by $12,0000, interest revenue by $89, interest receivable by $89.

Step by step solution

01

Definition of notes receivable

The notes receivable means the note that is received by the company. The notes receivable are issued by the debtor of the company and the debtor pays interest to the company on the notes.

02

Step 2: Journal entry of accepting notes

(a) Entry at the time of Exchange

Date

Account and explanation

Debit

Credit

December 1

Notes receivable – J. Michael

$12,000

Accounts Receivable- J. Michael

$12,000

(9% notes accepted by the company)

03

Adjusting entry to accrued interest revenue

(b) Journal entry for recording accrued revenue

Interest  Note =Principal×Rate×Time  Period=$12,000×9%×30365=$89

Date

Account and explanation

Debit

Credit

December 31

Interest Receivable

$89

Interest Revenue

$89

(Recording of accrued interest revenue)

04

 Step 4: Journal entry of a collection of the principal and interest at maturity

(c) The maturity date is determined by counting the actual days from the date of issue. The date of the issue was December 1, and the Maturity date was 30th.

Date

Account and explanation

Debit

Credit

January 30

Cash

$12,178

Interest Receivable

$89

Interest Revenue

$89

Notes Receivable- J. Michael

$12,000

(Notes receivable collected at maturity)

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Most popular questions from this chapter

Accounting for uncollectible accounts using the allowance method (aging-of-receivables) and reporting receivables on the balance sheet.

At December 31, 2018, the Accounts Receivable balance of GPS Technology is \(200,000. The Allowance for Bad Debts account has a \)24,110 debit balance. GPS Technology prepares the following aging schedule for its accounts receivable:

Age of Accounts

1–30 Days

31–60 Days

61–90 Days

Over 90 Days

Accounts Receivable

\( 65,000

\) 50,000

\(40,000

\)45,000

Estimated percent uncollectible

0.4%

3.0%

5.0%

48.0%

Requirement:

1. Journalize the year-end adjusting entry for bad debts on the basis of the aging schedule. Show the T-account for the Allowance for Bad Debts at December 31, 2018.

2. Show how GPS Technology will report its net accounts receivable on its December 31, 2018, balance sheet

Question: Endurance Running Shoes reports the following:

2018

May 6

Recorded credit sales of \(102,000. Ignore Cost of Goods Sold.

Jul. 1

Loaned \)18,000 to Jerry Paul, an executive with the company, on a one-year, 7% note

Dec. 31

Accrued interest revenue on the Paul note

2019

Jul. 1

Collected the maturity value of the Paul note


Journalize all entries required for Endurance Running Shoes.

Sleepy Recliner Chairs completed the following selected transactions:

2018

Jul. 1 Sold merchandise inventory to Stan-Mart, receiving a \(41,000, nine-month, 8%

note. Ignore Cost of Goods Sold.

Oct. 31 Recorded cash sales for the period of \)24,000. Ignore Cost of Goods Sold.

Dec. 31 Made an adjusting entry to accrue interest on the Stan-Mart note.

31 Made an adjusting entry to record bad debts expense based on an aging

of accounts receivable. The aging schedule shows that \(13,800 of accounts

receivable will not be collected. Prior to this adjustment, the credit balance in

Allowance for Bad Debts is \)11,800.

2019

Apr. 1 Collected the maturity value of the Stan-Mart note.

Jun. 23 Sold merchandise inventory to Appeal, Corp., receiving a 60-day, 6% note for

\(7,000. Ignore Cost of Goods Sold.

Aug. 22 Appeal, Corp. dishonoured its note at maturity; the business converted the

maturity value of the note to an account receivable.

Nov. 16 Loaned \)17,000 cash to Crosby, Inc., receiving a 90-day, 16% note.

Dec. 5 Collected in full on account from Appeal, Corp.

31 Accrued the interest on the Crosby, Inc. note.

Record the transactions in the journal of Sleepy Recliner Chairs. Explanations are not

required. (Round to the nearest dollar.)

P8-38B Accounting for uncollectible accounts (aging-of-receivables method),

notes receivable, and accrued interest revenue

Relax Recliner Chairs completed the following selected transactions:

2018

Jul. 1 Sold merchandise inventory to Go-Mart, receiving a \(43,000, nine-month,

16% note. Ignore Cost of Goods Sold.

Oct. 31 Recorded cash sales for the period of \)23,000. Ignore Cost of Goods Sold.

Dec. 31 Made an adjusting entry to accrue interest on the Go-Mart note.

31 Made an adjusting entry to record bad debts expense based on an aging

of accounts receivable. The aging schedule shows that \(14,900 of accounts

receivable will not be collected. Prior to this adjustment, the credit balance

in Allowance for Bad Debts is \)10,700.

2019

Apr. 1 Collected the maturity value of the Go-Mart note.

Jun. 23 Sold merchandise inventory to Allure, Corp., receiving a 60-day, 6% note for

\(7,000. Ignore Cost of Goods Sold.

Aug. 22 Allure, Corp. dishonored its note at maturity; the business converted the

maturity value of the note to an account receivable.

Nov. 16 Loaned \)20,000 cash to Tench, Inc., receiving a 90-day, 8% note.

Dec. 5 Collected in full on account from Allure, Corp.

31 Accrued the interest on the Tench, Inc. note.

Record the transactions in the journal of Relax Recliner Chairs. Explanations are not

required. (Round to the nearest dollar.)

Johnson Company uses the allowance method to account for uncollectible receivables. On September 2, Johnson wrote off a

\(14,000 account receivable from customer J. Mraz. On December 12, Johnson unexpectedly received full payment from Mraz on

the previously written off account. Johnson records an adjusting entry for bad debts expense of \)800 on December 31.

9. Journalize Johnson’s write-off of the uncollectible receivable.

10. Journalize Johnson’s collection of the previously written off receivable.

11. Journalize Johnson’s adjustment for bad debts expense.
See all solutions

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