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Chapter 8: Q9SE (page 468)

Question: A table of notes receivable for 2018 follows:

Principal

Interest

Interest Period During 2018

Note 1

\( 30,000

6%

6 months

Note 2

\) 12,000

10%

270 days

Note 3

\( 14,000

14%

75 days

Note 4

\) 100,000

7%

10 months

For each of the notes receivable, compute the amount of interest revenue earned during 2018. Round to the nearest dollar

Short Answer

Expert verified

Answer:

The amount of interest earned:

Note 1- $900

Note 2- $888

Note 3- $403

Note 4- $5,833

Step by step solution

01

Definition of note 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: Interest Calculation for Notes Receivable

Interest  Note 1=Principal×Rate×Time  Period=$30,000×6%×6Interest  Note 2=Principal×Rate×Time  Period=$12,000×10%×270365=$88812=$900Interest  Note 2=Principal×Rate×Time  Period=$12,000×10%×270365=$888Interest  Note 3=Principal×Rate×Time  Period=$14,000×14%×75365=$403Interest  Note 4=Principal×Rate×Time  Period=$100,000×7%×1012=$5,833

03

Total interest calculation for year 2018

Principal

Interest

Period

Interest

Note 1

$ 30,000

6%

6 Months

$900

Note 2

$ 30,000

10%

270 days

$888

Note 3

$ 14,000

14%

75 days

$403

Note 4

$ 100,000

7%

10 Months

$5,833

The amount of Interest revenue earned during 2018 is $ 8024.

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Most popular questions from this chapter

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.

At January 1, 2018, Hilltop Flagpoles had Accounts Receivable of \(28,000, and Allowance for Bad Debts had a credit balance of \)3,000. During the year, Hilltop Flagpoles recorded the following:

a. Sales of \(185,000 (\)164,000 on account; \(21,000 for cash). Ignore Cost of Goods Sold.

b. Collections on account, \)135,000.

c. Write-offs of uncollectible receivables, $2,300.

Requirements

1. Journalize Hilltop’s transactions that occurred during 2018. The company uses the allowance method.

2. Post Hilltop’s transactions to the Accounts Receivable and Allowance for Bad Debts T-accounts.

3. Journalize Hilltop’s adjustment to record bad debts expense assuming Hilltop estimates bad debts as 3% of credit sales. Post the adjustment to the appropriate T-accounts.

4. Show how Hilltop Flagpoles will report net accounts receivable on its December 31, 2018, balance sheet.

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

What occurs when a business factors its receivables?

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
See all solutions

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