Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 7: Question: P7-8 (page 373)

(Notes Receivable Journal Entries) On December 31, 2017, Oakbrook Inc. rendered services to Beghun Corporation at an agreed price of \(102,049, accepting \)40,000 down and agreeing to accept the balance in four equal installments of $20,000 receivable each December 31. An assumed interest rate of 11% is imputed.

Instructions

Prepare the entries that would be recorded by Oakbrook Inc. for the sale and the receipts and interest on the following dates (prepare an amortization schedule). (Assume that the effective-interest method is used for amortization purposes.)

(a) December 31, 2017.

(b) December 31, 2018.

(c) December 31, 2019.

(d) December 31, 2020.

(e) December 31, 2021.

Short Answer

Expert verified

Debit and credit side of journal totals$200,000.

Step by step solution

01

Definition of Interest Rate

A percentage rate that determines the finance charges to be paid to the lender by the borrower is known as interest rate.

02

Journal Entries

Date

Accounts and Explanation

Debit $

Credit $

31 Dec 2017

Cash

$40,000

Note receivable

$62,049

Service revenue

$102,049

31 Dec 2018

Cash

$20,000

Note receivable

$20,000

Note receivable

$6,825.39

Interest revenue

$6,825.39

31 Dec 2019

Cash

$20,000

Note receivable

$20,000

Note receivable

$5,376.18

Interest revenue

$5,376.18

31 Dec 2020

Cash

$20,000

Note receivable

$20,000

Note receivable

$3,767.56

Interest revenue

$3,767.56

31 Dec 2021

Cash

$20,000

Note receivable

$20,000

Note receivable

$1,981.99

Interest revenue

$1,981.99

$200,000

$200,000

Working note: Amortization Table

Date

Cash received

Interest Revenue @ 11%

Carrying amount of note

31 Dec 2017

-

-

$62,049

31 Dec 2018

$20,000

$6,825.39

$48,874.39

31 Dec 2019

$20,000

$5,376.18

$34,250.57

31 Dec 2020

$20,000

$3,767.56

$18018.13

31 Dec 2021

$20,000

$1,981.99

$0

Note: Carrying amount is calculated by deducting the amount of cash received from the sum of the previous year’s carrying amount and interest revenue for the period.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

(Expected Cash Flows) On December 31, 2017, Iva Majoli Company borrowed \(62,092 from Paris Bank, signing a 5-year, \)100,000 zero-interest-bearing note. The note was issued to yield 10% interest. Unfortunately, during 2019, Majoli began to experience financial difficulty. As a result, at December 31, 2019, Paris Bank determined that it was probable that it would receive back only $75,000 at maturity. The market rate of interest on loans of this nature is now 11%.

Instructions

(a) Prepare the entry to record the issuance of the loan by Paris Bank on December 31, 2017.

(b) Prepare the entry, if any, to record the impairment of the loan on December 31, 2019, by Paris Bank.

On October 1, 2017, Chung, Inc. assigns \(1,000,000 of its accounts receivable to Seneca National Bank as collateral for a \)750,000 note. The bank assesses a finance charge of 2% of the receivables assigned and interest on the note of 9%. Prepare the October 1 journal entries for both Chung and Seneca.

(Journalizing Various Receivable Transactions) The trial balance before adjustment for Phil Collins Company shows the following balances.

Debit

Credit

Accounts receivables

\(82,000

Allowance for doubtful accounts

\)2,120

Sales revenue

\(430,000

Instructions

Using the data above, give the journal entries required to record each of the following cases. (Each situation is independent.)

1. To obtain additional cash, Collins factors without recourse \)25,000 of accounts receivable with Stills Finance. The finance charge is 10% of the amount factored.

2. To obtain a 1-year loan of \(55,000, Collins pledges \)65,000 of specific receivable accounts to Crosby Financial. The finance charge is 8% of the loan; the cash is received and the accounts turned over to Crosby Financial.

3. The company wants to maintain the Allowance for Doubtful Accounts at 5% of gross accounts receivable.

4. Based on an aging analysis, an allowance of \(5,800 should be reported. Assume the allowance has a credit balance of \)1,100.

(Assigned Accounts Receivable—Journal Entries) Salen Company finances some of its current operations by assigning accounts receivable to a finance company. On July 1, 2017, it assigned, under guarantee, specific accounts amounting to \(150,000. The finance company advanced to Salen 80% of the accounts assigned (20% of the total to be withheld until the finance company has made its full recovery), less a finance charge of ½% of the total accounts assigned.

On July 31, Salen Company received a statement that the finance company had collected \)80,000 of these accounts and had made an additional charge of ½% of the total accounts outstanding as of July 31. This charge is to be deducted at the time of the first remittance due Salen Company from the finance company. (Hint: Make entries at this time.) On August 31, 2017, Salen Company received a second statement from the finance company, together with a check for the amount due. The statement indicated that the finance company had collected an additional $50,000 and had made a further charge of ½% of the balance outstanding as of August 31.

Instructions

Make all entries on the books of Salen Company that are involved in the transactions above.

Dold Acrobats lent \(16,529 to Donaldson, Inc., accepting Donaldson’s 2-year, \)20,000, zero-interest-bearing note. The implied interest rate is 10%. Prepare Dold’s journal entries for the initial transaction, recognition of interest each year, and the collection of $20,000 at maturity.
See all solutions

Recommended explanations on Business Studies Textbooks

Organizational Behavior

Read Explanation

Human Resources

Read Explanation

Change Management

Read Explanation

Business Development

Read Explanation

Operational Management

Read Explanation

Corporate Finance

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free