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Chapter 8: Q32PGA (page 477)

Accounting for notes receivable and accruing interestCarley Realty loaned money and received the following notes during 2018.Note Date Principal Amount Interest Rate Term

(1) Apr. 1 $ 6,000 7% 1 year

(2) Sep. 30 12,000 6% 6 months

(3) Sep. 19 18,000 8% 90 days

Requirements

1. Determine the maturity date and maturity value of each note.

2. Journalize the entries to establish each Note Receivable and to record the collection ofprincipal and interest at maturity. Include a single adjusting entry on December 31, 2018, the fiscal year-end, to record accrued interest revenue on any applicable note.Explanations are not required. Round to the nearest dollar.

Short Answer

Expert verified

(1) Maturity date and maturity value

Note 1- 31 March 2019 and $6,420

Note 2- 31 March 2019 and$12,360

Note 3- 18 December 2018 and $18,355

(2) Journal entries are recorded in Step 3

Step by step solution

01

Definition of the maturity date

The maturity date of the note is the date at which the notes become due. On the maturity date, the amount of the notes receivable is received by the company.

02

Maturity date and maturity value

Note

Date

Principal

Time

Maturity date

Year

Value

1

April 1

$6,000

One year

31 March

2019

$6,420

2

September 30

$12,000

Six months

31 March

2019

$12,360

3

September 19

$18,000

90 days

18 December

2018

$18,355

Note 1-

滨苍迟别谤别蝉迟=鈥塒谤颈苍肠颈辫补濒脳滨苍迟别谤别蝉迟脳罢颈尘别=$6,000脳鈥�7%脳1=$420

Note 2-

滨苍迟别谤别蝉迟=鈥塒谤颈苍肠颈辫补濒脳滨苍迟别谤别蝉迟脳罢颈尘别=$12,000脳6%脳612=$360

Note 3-

滨苍迟别谤别蝉迟=鈥塒谤颈苍肠颈辫补濒脳滨苍迟别谤别蝉迟脳罢颈尘别=$18,000脳8%脳90365=$355

03

Journal entries

Date

Particulars

Debit

Credit

April 1, 2018

Notes Receivable

$6,000

Cash

$6,000

(To entry for notes receivable)

September 30, 2018

Notes Receivable

$12,000

Cash

$12,000

(To entry for notes receivable)

September 19, 2018

Notes Receivable

$18,000

Cash

$18,000

(To entry for notes receivable)

December 18, 2018

Cash

$18,360

Notes Receivable

$18,000

Interest receivable

$360

(To notes receivable-3 is collected on maturity)

December 31, 2018

Interest Receivable

$315

Interest revenue

$315

(To interest accrues on note 1)

December 31, 2018

Interest Receivable

$180

Interest Revenue

$180

(To interest revenue accrue on note 2)

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Most popular questions from this chapter

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

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.

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

balance sheet

On August 31, 2018, Bouquet Floral Supply had a \(140,000 debit balance in AccountsReceivable and a \)5,600 credit balance in Allowance for Bad Debts. During September,

Bouquet made:

鈥� Sales on account, \(550,000. Ignore Cost of Goods Sold.

鈥� Collections on account, \)584,000.

鈥� Write-offs of uncollectible receivables, $4,000.

Requirements

1. Journalize all September entries using the allowancemethod. 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 Bouquet used the direct write-off method toaccount for uncollectible receivables. Journalize all September entries using thedirect write-offmethod. Post to Accounts Receivable and Bad Debts Expense, andshow their balances at September 30, 2018.

3. What amount of Bad Debts Expense would Bouquet report on its Septemberincome statement under each of the two methods? Which amount better matchesexpense with revenue? Give your reason.

4. What amount of netaccounts receivable would Bouquet report on its September30, 2018, balance sheet under each of the two methods? Which amount is morerealistic? Give your reason.

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.

List some common examples of other receivables, besides accounts receivable and notes receivable.
See all solutions

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