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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

Suppose The Right Rig Dealership is opening a regional office in Omaha. Cary Regal, the office manager, is designing the internal control system. Regal proposes the following procedures for credit checks on new customers, sales on account, cash collections, and write-offs of uncollectible receivables:

鈥� The credit department runs a credit check on all customers who apply for credit. When an account proves uncollectible, the credit department authorizes the write off of the accounts receivable.

鈥� Cash receipts come into the credit department, which separates the cash received from the customer remittance slips. The credit department lists all cash receipts by customer name and amount of cash received.

鈥� The cash goes to the treasurer for deposit in the bank. The remittance slips go to the accounting department for posting to customer accounts.

鈥� The controller compares the daily deposit slip to the total amount posted to customer accounts. Both amounts must agree.

Recall the components of internal control. Identify the internal control weakness in this situation, and propose a way to correct it.

Question:

Journalizing note receivable transactions including a dishonored note

On September 30, 2018, Team Bank loaned $94,000 to Kendall Warner on a one-year, 6% note. Team鈥檚 fiscal year ends on December 31.

Requirements

1. Journalize all entries for Team Bank related to the note for 2018 and 2019.

2. Which party has a

a. note receivable?

b. note payable?

c. interest revenue?

d. interest expense?

3. Suppose that Kendall Warner defaulted on the note. What entry would the Team record for the dishonored note?

What are some benefits to a business in accepting credit cards and debit cards?

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.

At September 30, 2018, the accounts of Green Terrace Medical Center (GTMC)

include the following:

Accounts Receivable \( 145,000

Allowance for Bad Debts (credit balance) 3,500

During the last quarter of 2018, GTMC completed the following selected transactions:

鈥� Sales on account, \)450,000. Ignore Cost of Goods Sold.

鈥� Collections on account, \(427,100

鈥� Wrote off accounts receivable as uncollectible: Regan, Co., \)1,400; Owen Reis, \(800;

and Patterson, Inc., \)700

鈥� Recorded bad debts expense based on the aging of accounts receivable, as follows:

Age of Accounts

1鈥�30 Days 31鈥�60

Days

61鈥�90

Days

Over 90

Days

Accounts Receivable \( 104,000 \) 39,000 \( 14,000 \) 8,000

Estimated percent uncollectible 0.3% 3% 30% 35%

Requirements

1. Open T-accounts for Accounts Receivable and Allowance for Bad Debts.

Journalize the transactions (omit explanations) and post to the two accounts.

2. Show how Green Terrace Medical Center should report net accounts receivable on

its December 31, 2018, balance sheet.
See all solutions

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