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Chapter 8: Q39PGB (page 481)

Accounting for notes receivable and accruing interestLogan Realty loaned money and received the following notes during 2018.Note Date Principal Amount Interest Rate Term

(1) Oct. 1 $ 16,000 7% 1 year

(2) Jun. 30 18,000 18% 9 months

(3) Sep. 19 12,000 8% 90 days

Requirements

1. Determine the maturity date and maturity value of each note.

2. Journalize the entries to establish each Note Receivable and to record collection ofprincipal and interest at maturity. Include a single adjusting entry on December 31,2018, the fiscal year-end, to record accrued interest revenue on any applicable note.Explanations are not required. Round to the nearest dollar.

Short Answer

Expert verified

1. The maturity date:

Note 1: March 31, 2019

Note 2: March 31, 2019

Note 3: December 18, 208

2. The cash account is debited with $237, and the interest receivable account is credited with $237.

Step by step solution

01

Definition of the maturity date

A note’s maturity date is when a note becomes due. On the maturity date, the amount of the notes receivable is received by a company.

02

Maturity date and maturity value

Note

Date

Principal

Time

Maturity date

Year

Value

1

April 1

$16,000

One year

31 March

2019

$17,120

2

September 30

$18,000

Nine months

31 March

2019

$20,430

3

September 19

$12,000

90 days

18 December

2018

$12,237

Note 1:

Interest= Principal×Interest×Time= $16,000× 7%×1= $1,120.

Note 2:

Interest= Principal×Interest×Time= $18,000×18%×912= $2,430.

Note 3:

Interest= Principal×Interest×Time= $12,000×8%×90365= $237.

03

Journal entries

Date

Particulars

Debit

Credit

April 1, 2018

Notes Receivable

$16,000

Cash

$16,000

(Being entry for notes receivable)

September 30, 2018

Notes Receivable

$18,000

Cash

$18,000

(Being entry for notes receivable)

September 19, 2018

Notes Receivable

$12,000

Cash

$12,000

(Being entry for notes receivable)

December 18, 2018

Cash

$12,000

Notes Receivable

$12,000

(Being notes receivable is collected on maturity)

December 18, 2018

Interest Receivable

$237

Interest Accrued

$237

(Being interest accrues)

December 18, 2018

Cash

$237

Interest Receivable

$237

December 31, 2018

Interest Receivable

$1,712

Interest Revenue

$1,712

(Being interest revenue recognised)

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Most popular questions from this chapter

During August 2018, Lima Company recorded the following:

• Sales of \(133,300 (\)122,000 on account; \(11,300 for cash). Ignore Cost of Goods Sold.

• Collections on account, \)106,400.

• Write-offs of uncollectible receivables, \(990.

• Recovery of receivable previously written off, \)800.

Requirement:

1. Journalize Lima’s transactions during August 2018, assuming Lima uses the direct write-off method.

2. Journalize Lima’s transactions during August 2018, assuming Lima uses the allowance method

This problem continues the Crystal Clear Cleaning problem begun in Chapter 2 and

continued through Chapter 7.

Crystal Clear Cleaning uses the allowance method to estimate bad debts. Consider the following April 2019 transactions for Crystal Clear Cleaning:

Apr. 1 Performed cleaning service for Debbie’s D-list for \(13,000 on account with

terms n/20.

10 Borrowed money from First Regional Bank, \)30,000, making a 180-day, 12% note.

12 After discussions with customer More Shine, Crystal Clear has determined that

\(230 of the receivable owed will not be collected. Wrote off this portion of the

receivable.

15 Sold goods to Warner for \)9,000 on account with terms n/30. Cost of Goods Sold

was \(4,500.

28 Sold goods to Lelaine, Inc. for cash of \)2,800 (cost \(840).

28 Collected from More Shine, \)230 of receivable previously written off.

29 Paid cash for utilities of \(150.

30 Created an aging schedule for Crystal Clear Cleaning for accounts receivable.

Crystal Clear determined that \)7,000 of receivables outstanding for 1–30 days

were 3% uncollectible, \(10,000 of receivables outstanding for 31–60 days were

20% uncollectible, and \)5,870 of receivables outstanding for more than 60 days

were 30% uncollectible. Crystal Clear Cleaning determined the total amount of

estimated uncollectible receivables and adjusted the Allowance for Bad Debts.

Assume the account had an unadjusted credit balance of $260. (Round to

nearest whole dollar.)

Requirements

1. Prepare all required journal entries for Crystal Clear. Omit explanations.

2. Show how net accounts receivable would be reported on the balance sheet as of

April 30, 2019.

Applying the allowance method to account for uncollectibles

The Accounts Receivable balance and Allowance for Bad Debts for Signature Lamp

Company at December 31, 2017, was \(10,800 and \)2,000 (credit balance), respectively.

During 2018, Signature Lamp Company completed the following transactions:

a. Sales revenue on account, \(273,400 (ignore Cost of Goods Sold).

b. Collections on account, \)223,000.

c. Write-offs of uncollectibles, \(5,900.

d. Bad debts expense of \)5,200 was recorded

Requirements

1. Journalize Signature Lamp Company’s transactions for 2018 assuming Signature Lamp Company uses the allowance method.

2. Post the transactions to the Accounts Receivable, Allowance for Bad Debts, and Bad Debts Expense T-accounts, and determine the ending balance of each account.

3. Show how accounts receivable would be reported on the balance sheet at December 31, 2018.

What is the difference between the percent-of-receivables and aging-of-receivables methods?

Recording credit sales and collections

Record the following transactions for Summer Consulting. Explanations are not required.

Apr. 15

Provided consulting services to Bob Jones and billed the customer \(1,500.

18

Provided consulting services to Samantha Cruise and billed the customer \)865.

25

Received \(750 cash from Jones.

28

Provided consulting services to Regan Taylor and billed the customer \)625.

28

Received \(865 cash from Cruise.

30

Received \)1,375 cash, \(750 from Jones and \)625 from Taylor
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