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Chapter 8: Q24E (page 473)

Journalizing note receivable transactions

The following selected transactions occurred during 2018 and 2019 for Baltic Importers. The company ends its accounting year on September 30.

2018

Jul. 1

Loaned \(16,000 cash to Bud Shyne on a one-year, 8% note.

Sep. 6

Sold goods to Lawn Pro, receiving a 90-day, 6% note for \)11,000. Ignore Cost of Goods Sold.

30

Made a single entry to accrue interest revenue on both notes.

?

Collected the maturity value of the Lawn Pro note.

2019

Jul. 1

Collected the maturity value of the Shyne note.

Journalize all required entries. Make sure to determine the missing maturity date. Round to the nearest dollar

Short Answer

Expert verified

The amount of cash collected on the maturity is $17,280.

Step by step solution

01

Definition of accounts receivables

The accounts receivables mean the amount owed by the company to its debtors. The accounts receivable is a type of current asset for the company.

02

Journalizing entries

The maturity date is determined by counting the actual days from the date of issue. The date of Issues was Sep 6, and the Maturity date was 5th December.

Date

Particulars

Debit

Credit

July 1

Notes Receivables- Bud Shyne

$16,000

Cash

$16,000

(Sold goods on account)

September 6

Accounts Receivable鈥� Lawn Pro

$11,000

Sale Revenue

$11,000

(Sales of goods on account)

September 6

Note Receivable鈥� Lawn Pro

$11,000

Accounts Receivable 鈥� Lawn Pro

$11,000

(Note was issued against sale)

September 30

Interest Receivable

$364

Interest Revenue (16,000*8%*3/12)+(11,000*6%*24/360)

$364

(Accrued interest revenue)

December 5

Cash

$11,165

Notes Receivable-

$11,000

Interest Receivable(11,000*6%*24/360)

$44

Interest Revenue (11,000*6%*66/360)

$121

(Collected note receivable plus interest.)

2019

July 1

Cash

$17,280

Notes Receivable-

$16,000

Interest Receivable(16,000*8%*3/12)

$320

Interest Revenue(16,000*8%*9/12)

$960

(Collected note receivable plus interest.)

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Most popular questions from this chapter

How does the percent-of-sales method compute bad debts expense?

Accounting for uncollectible accounts using the allowance method

This problem continues the Canyon Canoe Company situation from Chapter 7.

Canyon Canoe Company has experienced rapid growth in its first few months of operations and has had a significant increase in customers renting canoes and purchasing T-shirts. Many of these customers are asking for credit terms. Amber and Zack Wilson, stockholders and company managers, have decided it is time to review their business transactions and update some of their business practices. Their first step is to make decisions about handling accounts receivable.

So far, year-to-date credit sales have been \(15,500. A review of outstanding

receivables resulted in the following aging schedule:


Age of Accounts as of June 30, 2019

Customer name

1-30 days

31-60 days

61-90 days

Over 90 days

Total balance

Canyon

\)250

\(250

Crazy trees

\)200

\(150

\)350

Early start Daycare

\(500

Lakefront Pavilion

\)575

\(500

\)575

Outdoor Center

\(300

\)300

Rivers Canoe Club

\(350

\)350

Sport Shirts

\(450

\)120

\(570

Zack鈥檚 Marina

\)75

\(75

\)225

Totals

\(1,900

\)345

\(375

\)500

$3,120

Requirements

1. The company wants to use the allowance method to estimate bad debts. Determine the estimated bad debts expense under the following methods at June 30, 2019. Assume a zero-beginning balance for Allowance for Bad Debts. Round to the nearest dollar.

a. Percent-of-sales method, assuming 4.5% of credit sales will not be collected.

b. Percent-of-receivables method, assuming 22.5% of receivables will not be

collected.

c. Aging-of-receivables method, assuming 5% of invoices 1鈥�30 days will not be

collected, 20% of invoices 31鈥�60 days, 40% of invoices 61鈥�90 days, and 75% of

invoices over 90 days.

2. Journalize the entry at June 30, 2019, to adjust for bad debts expense using the percent-of-sales method.

3. Journalize the entry at June 30, 2019, to record the write-off of the Early Start Daycare invoice.

4. At June 30, 2019, open T-accounts for Accounts Receivable and Allowance for Bad Debts before Requirements 2 and 3. Post entries from Requirements 2 and 3 to those accounts. Assume a zero beginning balance for Allowance for Bad Debts.

5. Show how Canyon Canoe Company will report net accounts receivable on the balance sheet on June 30, 2019.

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鈥檚 journal. Round to the nearest dollar.

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

Accounting for uncollectible accounts using the allowance (percent of-sales) and direct write-off methods and reporting receivables on thebalance sheet

On August 31, 2018, Forget-Me-Not Floral Supply had a \(140,000 debit balance inAccounts Receivable and a \)5,600 credit balance in Allowance for Bad Debts. DuringSeptember, Forget-Me-Not made the following transactions:

鈥� Sales on account, \(530,000. Ignore Cost of Goods Sold.

鈥� Collections on account, \)573,000.

鈥� Write-offs of uncollectible receivables, $6,000.

Requirements

1. Journalize all September entries using the allowance method. Bad debts expense wasestimated at 2% of credit sales. Show all September activity in Accounts Receivable,Allowance for Bad Debts, and Bad Debts Expense (post to these T-accounts).

2. Using the same facts, assume that Forget-Me-Not used the direct write-off methodto account for uncollectible receivables. Journalize all September entries using thedirect write-off method. Post to Accounts Receivable and Bad Debts Expense, andshow their balances at September 30, 2018.

3. What amount of Bad Debts Expense would Forget-Me-Not report on its Septemberincome statement under each of the two methods? Which amount better

matches expense with revenue? Give your reason.

4. What amount of net accounts receivable would Forget-Me-Not report on its September

30, 2018, balance sheet under each of the two methods? Which amount ismore realistic? Give your reason
See all solutions

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