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Chapter 8: Q25E (page 473)

Professional Steam Cleaning performs services on account. When a customer account becomes four months old, Professional converts the account to a note receivable. During 2018, the company completed the following transactions:

2018

Apr.28

Performed service on account for Parkview Club, \(18,000.

Sep. 1

Received an \)18,000, 60-day, 12% note from Parkview Club in satisfaction of its past-due account receivable.

Oct. 31

Collected the Parkview Club note at maturity

Record the transactions in Professional’s journal. Round to the nearest dollar.

Short Answer

Expert verified

Journal entries are recorded in step 2.

Step by step solution

01

Calculation of interest amount

Interest amount is calculated as follows:


InterestAmount=Notesreceivable×Interestrate×FractionofYear=$18,000×12%×60365=$355

02

Journal entries

Date

Account and explanation

Debit

Credit

Apr.28

Accounts Receivable - Parkview club

$ 18,000

Service Revenue

$ 18,000

(To record services revenue earned)

Sept 1

Notes Receivable - Parkview club

$ 18,000

Accounts Receivable - Parkview club

$ 18,000

(To record note issued against accounts receivable)

Oct.31

Cash

$18,355

Notes Receivable- Parkview club

$18,000

Interest Revenue

$355

(To record collection of note with interest)

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Most popular questions from this chapter

How do the percent-of-receivables and aging-of-receivables methods compute bad debts expense?

In accounting for bad debts, how do the income statement approach and the balance sheet approach differ?

Applying the allowance method (percent-of-receivables) to account for Uncollectibles

The Accounts Receivable balance for Lake, Inc. at December 31, 2017, was \(20,000. During 2018, Lake earned revenue of \)454,000 on account and collected \(325,000 on account. Lake wrote off \)5,600 receivables as uncollectible. Industry experience suggests that uncollectible accounts will amount to 5% of accounts receivable.

Requirements

1. Assume Lake had an unadjusted \(2,700 credit balance in Allowance for Bad Debts at December 31, 2018. Journalize Lake’s December 31, 2018, adjustment to record bad debts expense using the percent-of-receivables method.

2. Assume Lake had an unadjusted \)2,400 debit balance in Allowance for Bad Debts at December 31, 2018. Journalize Lake’s December 31, 2018, adjustment to record bad debts expense using the percent-of-receivables method

Consider the following transactions for CC Publishing.

2018

Dec. 6 Received a \(18,000, 90-day, 6% note in settlement of an overdue accountsreceivable from Go Go Publishing.

31 Made an adjusting entry to accrue interest on the Go Go Publishing note.

31 Made a closing entry for interest revenue.

2019

Mar. 6 Collected the maturity value of the Go Go Publishing note.

Jun. 30 Loaned \)11,000 cash to Lincoln Music, receiving a six-month, 20% note.

Oct. 2 Received a $2,400, 60-day, 20% note for a sale to Tusk Music. Ignore Cost ofGoods Sold.

Dec. 1 Tusk Music dishonored its note at maturity.

1 Wrote off the receivable associated with Tusk Music. (Use the allowance method.)

30 Collected the maturity value of the Lincoln Music note.

Journalize all transactions for CC Publishing. Round all amounts to the nearest dollar.

What occurs when a business factors its receivables?
See all solutions

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