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Chapter 8: Q22E (page 472)

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.

Short Answer

Expert verified

Answer:

Journal entries are recorded in Step 2.

Step by step solution

01

Definition of notes receivables

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

Journalizing transactions

Interest  Amount=  Loan   Amount× Interest  Rate× Time  Period=$18,000×7%×612=$630

Date

Particulars

Debit

Credit

May 06

Accounts Receivables

$102,000

Sales Revenue

$102,000

(Sold goods on account)

July 1

Notes Receivable- Jerry Paul

$18,000

Cash

$18,000

(Lend money to Jerry Paul)

December 31

Interest Receivable

$630

Interest Revenue

$630

(Accrued interest revenue)

2019

July 01

Cash

$19,260

Notes Receivable

$18,000

Interest Receivable

$630

Interest Revenue

$630

(Collected note receivable plus interest.)

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Most popular questions from this chapter

The comparative financial statements of Newton Cosmetic Supply for 2018, 2017,

and 2016 include the data shown here:

2018 2017 2016

Balance sheet—partial

Current Assets:

Cash \( 80,000 \) 50,000 $ 30,000

Short-term investment 150,000 170,000 125,000

Accounts Receivable, Net 310,000 260,000 220,000

Merchandise Inventory 360,000 335,000 330,000

Prepaid Expenses 50,000 30,000 35,000

Total Current Assets 950,000 845,000 740,000

Total Current Liabilities 530,000 630,000 670,000

Income statement—partial

Net Sales (all on account) 5,850,000 5,110,000 425,000

Requirements

1. Compute these ratios for 2018 and 2017:

a. Acid-test ratio (Round to two decimals.)

b. Accounts receivable turnover (Round to two decimals.)

c. Days’ sales in receivables (Round to the nearest whole day.)

2. Considering each ratio individually, which ratios improved from 2017 to 2018 and

which ratios deteriorated? Is the trend favorable or unfavorable for the company?

When a receivable is written off under the allowance method, how does it affect the net realizable value shown on the balance sheet?

What is a critical element of internal control in the handling of receivables by a business? Explain how this element is accomplished.

Ensuring internal control over the collection of receivables Consider internal control over receivables collections. What job must be withheld from a company’s credit department in order to safeguard its cash? If the credit department does perform this job, what can a credit department employee do to hurt the company?

Applying the direct write-off method to account for uncollectibles

Shawna Valley is an attorney in Los Angeles. Valley uses the direct write-off method to account for uncollectible receivables.

At April 30, 2018, Valley’s accounts receivable totaled \(19,000. During May, she earned revenue of \)22,000 on account and collected \(15,000 on account. She also wrote off uncollectible receivables of \)1,100 on May 31, 2018.

Requirements

1. Use the direct write-off method to journalize Valley’s write-off of the uncollectible receivables.

2. What is Valley’s balance of Accounts Receivable at May 31, 2018?
See all solutions

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