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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鈥檚 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脳Interestrate脳FractionofYear=$18,000脳12%脳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

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

Dialex Watches completed the following selected transactions during 2018 and 2019:

2018

Dec. 31 Estimated that bad debts expense for the year was 3% of credit sales of

\(410,000 and recorded that amount as expense. The company uses the

allowance method.

31 Made the closing entry for bad debts expense.

2019

Jan. 17 Sold merchandise inventory to Marty White, \)400, on account. Ignore Cost of

Goods Sold.

Jun. 29 Wrote off Marty White鈥檚 account as uncollectible after repeated efforts to

collect from him.

Aug. 6 Received \(400 from Marty White, along with a letter apologizing for being

so late. Reinstated White鈥檚 account in full and recorded the cash receipt.

Dec. 31 Made a compound entry to write off the following accounts as uncollectible:

Barry Krisp, \)1,600; Maria Bryant, \(1,100; and Richard Renik, \)400.

31 Estimated that bad debts expense for the year was 3% on credit sales of

\(490,000 and recorded the expense.

31 Made the closing entry for bad debts expense.

Requirements

1.Open T-accounts for Allowance for Bad Debts and Bad Debts Expense, assuming

the accounts begin with a zero balance. Record the transactions in the general

journal (omit explanations), and post to the two T-accounts.

2.Assume the December 31, 2019, balance of Accounts Receivable is \)136,000. Show

how net accounts receivable would be reported on the balance sheet at that date.

Defining common receivables terms

Match the terms with their correct definition.

Terms Definitions

1. Accounts receivable

a. The party to a credit transaction who takes on an obligation/payable.

2. Other receivables

b. The party who receives a receivable and will collect cash in the future.

3. Debtor

c. A written promise to pay a specified amount of money at a particular future date.

4. Notes receivable

d. The date when the note receivable is due.

5. Maturity date

e. A miscellaneous category that includes any other type of receivable where there is a right to receive cash in the future

6. Creditor

f. The right to receive cash in the future from customers for goods sold or for services performed.

On August 1, Taylor Company lent $80,000 to L. King on a 90-day, 5% note.

12. Journalize for Taylor Company the lending of the money on August 1.

13. Journalize the collection of the principal and interest at maturity. Specify the date. Round interest to the nearest dollar.

Applying the direct write-off method to account for uncollectibles

Shawna Valley is an attorney in Los Angeles. Valley uses the direct write-off method to account for uncollectible receivables.

At April 30, 2018, Valley鈥檚 accounts receivable totaled \(19,000. During May, she earned revenue of \)22,000 on account and collected \(15,000 on account. She also wrote off uncollectible receivables of \)1,100 on May 31, 2018.

Requirements

1. Use the direct write-off method to journalize Valley鈥檚 write-off of the uncollectible receivables.

2. What is Valley鈥檚 balance of Accounts Receivable at May 31, 2018?
See all solutions

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