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Chapter 8: Q4TI (page 455)

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.

Short Answer

Expert verified

(12) Notes receivable- L. King will be debited and cash will be credited by $80,000, respectively.

(13) Cash account will be debited by $80,986 and Notes Receivable- L. King will be credited by $80,000 and interest revenue will be credited by $986.

Step by step solution

01

Definition of notes receivable

The note is a written contract issued by the borrower to the lender. In this, the borrower promises to pay the money back on some future date.

02

Journal entry for lending the money

Date

Particulars

Debit

Credit

August 1

Notes Receivable- L. King

$80,000

Cash

$80,000

(Accepting notes in exchange for cash)

03

Journal entry for the maturity of the bond

Date

Particulars

Debit

Credit

October 30

Cash

$80,986

Notes Receivable- L. King

$80,000

Interest Revenue ($80,000 x 5% x 90/365)

$986

(Collection of notes and interest)

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Most popular questions from this chapter

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?

Ensuring internal control over the collection of receivables Consider internal control over receivables collections. What job must be withheld from a company鈥檚 credit department in order to safeguard its cash? If the credit department does perform this job, what can a credit department employee do to hurt the company?

Accounting for uncollectible accounts using the allowance method

(aging-of-receivables) and reporting receivables on the balance sheet

At September 30, 2018, the accounts of Spring Mountain Medical Center (SMMC)

include the following:

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

鈥� Sales on account, \(475,000. Ignore Cost of Goods Sold.

鈥� Collections on account, \)451,800.

鈥� Wrote off accounts receivable as uncollectible: Randall, Co., \(1,800; Oliver Welch,

\)900; and Rain, Inc., \(500

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 \) 97,000 \( 37,000 \) 17,000 $ 14,000

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 Spring Mountain Medical Center should report net accounts receivable

on its December 31, 2018, balance sheet.

What is the difference between the percent-of-receivables and aging-of-receivables methods?

Journalizing note receivable transactions

The following selected transactions occurred during 2018 and 2019 for Baltic Importers. The company ends its accounting year on September 30.

2018

Jul. 1

Loaned \(16,000 cash to Bud Shyne on a one-year, 8% note.

Sep. 6

Sold goods to Lawn Pro, receiving a 90-day, 6% note for \)11,000. Ignore Cost of Goods Sold.

30

Made a single entry to accrue interest revenue on both notes.

?

Collected the maturity value of the Lawn Pro note.

2019

Jul. 1

Collected the maturity value of the Shyne note.

Journalize all required entries. Make sure to determine the missing maturity date. Round to the nearest dollar
See all solutions

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