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Chapter 8: Q40PGB (page 482)

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

Short Answer

Expert verified

Answer:

Journal entries are recorded in Step 2.

Step by step solution

01

Definition of the maturity date

The note鈥檚 maturity date is the date when the notes become due for the payment.

02

Journal entries

Date

Particulars

Debit

Credit

December 6, 2018

Note Receivable

$8,000

Accounts Receivable

$8,000

(To record notes issued)

December 31, 2018

Interest Receivable ($8000*9%*25/365)

$49

Interest Revenue

$49

(To record accrued revenue)

December 31, 2018

Interest Revenue

$49

Income Summary

$49

(To record closure of accrued revenue)

2019

March 6

Cash

$8,178

Notes Receivable

$8,000

Interest Receivable

$49

Interest Revenue ($8000*9%*65/365)

$129

(To record cash received on maturity)

June 30

Notes Receivable- Washington Music

$14,000

Cash

$14,000

(To record notes issued)

October 2

Notes Receivable

$1,000

Sales revenue

$1,000

(To record sales revenue)

December 1

Accounts Receivable

$1,020

Notes Receivable

$1,000

Interest Receivable ($1,000*12%*60/365)

$20

(To record notes dishonoured)

December 1

Bad Debt Expense

$1,020

Allowance For Bad Debts

$1,020

(To record bad debt expense)

December 30

Cash

$14,840

Notes Receivable

$14,000

Interest Revenue ($14,000*12%*6/12)

$840

(To record cash received of notes on maturity.)

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Most popular questions from this chapter

At January 1, 2018, Hilltop Flagpoles had Accounts Receivable of \(28,000, and Allowance for Bad Debts had a credit balance of \)3,000. During the year, Hilltop Flagpoles recorded the following:

a. Sales of \(185,000 (\)164,000 on account; \(21,000 for cash). Ignore Cost of Goods Sold.

b. Collections on account, \)135,000.

c. Write-offs of uncollectible receivables, $2,300.

Requirements

1. Journalize Hilltop鈥檚 transactions that occurred during 2018. The company uses the allowance method.

2. Post Hilltop鈥檚 transactions to the Accounts Receivable and Allowance for Bad Debts T-accounts.

3. Journalize Hilltop鈥檚 adjustment to record bad debts expense assuming Hilltop estimates bad debts as 3% of credit sales. Post the adjustment to the appropriate T-accounts.

4. Show how Hilltop Flagpoles will report net accounts receivable on its December 31, 2018, balance sheet.

Applying the allowance method to account for uncollectibles

The Accounts Receivable balance and Allowance for Bad Debts for Signature Lamp

Company at December 31, 2017, was \(10,800 and \)2,000 (credit balance), respectively.

During 2018, Signature Lamp Company completed the following transactions:

a. Sales revenue on account, \(273,400 (ignore Cost of Goods Sold).

b. Collections on account, \)223,000.

c. Write-offs of uncollectibles, \(5,900.

d. Bad debts expense of \)5,200 was recorded

Requirements

1. Journalize Signature Lamp Company鈥檚 transactions for 2018 assuming Signature Lamp Company uses the allowance method.

2. Post the transactions to the Accounts Receivable, Allowance for Bad Debts, and Bad Debts Expense T-accounts, and determine the ending balance of each account.

3. Show how accounts receivable would be reported on the balance sheet at December 31, 2018.

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.

Question: McKale Corporation has a three-month, $18,000, 9% note receivable from L. Peters that was signed on June 1, 2018. Peters defaults on the loan on September 1.

Journalize the entry for McKale to record the default of the loan

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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