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Chapter 8: Q39PGB (page 481)

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

(1) Oct. 1 $ 16,000 7% 1 year

(2) Jun. 30 18,000 18% 9 months

(3) Sep. 19 12,000 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 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. The maturity date:

Note 1: March 31, 2019

Note 2: March 31, 2019

Note 3: December 18, 208

2. The cash account is debited with $237, and the interest receivable account is credited with $237.

Step by step solution

01

Definition of the maturity date

A note鈥檚 maturity date is when a note becomes due. On the maturity date, the amount of the notes receivable is received by a company.

02

Maturity date and maturity value

Note

Date

Principal

Time

Maturity date

Year

Value

1

April 1

$16,000

One year

31 March

2019

$17,120

2

September 30

$18,000

Nine months

31 March

2019

$20,430

3

September 19

$12,000

90 days

18 December

2018

$12,237

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=鈥�$16,000脳鈥�7%脳1=鈥�$1,120.

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=鈥�$18,000脳18%脳912=鈥�$2,430.

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=鈥�$12,000脳8%脳90365=鈥�$237.

03

Journal entries

Date

Particulars

Debit

Credit

April 1, 2018

Notes Receivable

$16,000

Cash

$16,000

(Being entry for notes receivable)

September 30, 2018

Notes Receivable

$18,000

Cash

$18,000

(Being entry for notes receivable)

September 19, 2018

Notes Receivable

$12,000

Cash

$12,000

(Being entry for notes receivable)

December 18, 2018

Cash

$12,000

Notes Receivable

$12,000

(Being notes receivable is collected on maturity)

December 18, 2018

Interest Receivable

$237

Interest Accrued

$237

(Being interest accrues)

December 18, 2018

Cash

$237

Interest Receivable

$237

December 31, 2018

Interest Receivable

$1,712

Interest Revenue

$1,712

(Being interest revenue recognised)

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Most popular questions from this chapter

Question: Consider the following transactions for TLC Company.

2018

Dec. 6 Received a \(8,000, 90-day, 9% note in settlement of an overdue accounts

receivable from Forest Music.

31 Made an adjusting entry to accrue interest on the Forest Music note.

31 Made a closing entry for interest revenue.

2019

Mar. 6 Collected the maturity value of the Forest Music note.

Jun. 30 Loaned \)14,000 cash to Washington Music, receiving a six-month, 12% note.

Oct. 2 Received a $1,000, 60-day, 12% note for a sale to ZZZ Music. Ignore Cost of

Goods Sold.

Dec. 1 ZZZ Music dishonored its note at maturity.

1 Wrote off the receivable associated with ZZZ Music. (Use the allowance

method.)

30 Collected the maturity value of the Washington Music note

On June 1, 2018, Best Performance Cell Phones sold \(21,000 of merchandise to Anthony Trucking Company on account. Anthony fell on hard times and on July 15 paid only \)5,000 of the account receivable. After repeated attempts to collect, Best Performance finally wrote off its accounts receivable from Anthony on September 5. Six months later, on March 5, 2019, Best Performance received Anthony鈥檚 check for $16,000 with a note apologizing for the late payment.

Requirements

1. Journalize the transactions for Best Performance Cell Phones using the direct write-off method. Ignore Cost of Goods Sold.

2. What are some limitations that Best Performance will encounter when using the direct write-off method?

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.

Applying the allowance method (percent-of-receivables) to account for Uncollectibles

The Accounts Receivable balance for Lake, Inc. at December 31, 2017, was \(20,000. During 2018, Lake earned revenue of \)454,000 on account and collected \(325,000 on account. Lake wrote off \)5,600 receivables as uncollectible. Industry experience suggests that uncollectible accounts will amount to 5% of accounts receivable.

Requirements

1. Assume Lake had an unadjusted \(2,700 credit balance in Allowance for Bad Debts at December 31, 2018. Journalize Lake鈥檚 December 31, 2018, adjustment to record bad debts expense using the percent-of-receivables method.

2. Assume Lake had an unadjusted \)2,400 debit balance in Allowance for Bad Debts at December 31, 2018. Journalize Lake鈥檚 December 31, 2018, adjustment to record bad debts expense using the percent-of-receivables method

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.
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