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Chapter 7: Question: BE7-7 (page 363)

Milner Family Importers sold goods to Tung Decorators for \(30,000 on November 1, 2017, accepting Tung鈥檚 \)30,000, 6-month, 6% note. Prepare Milner鈥檚 November 1 entry, December 31 annual adjusting entry, and May 1 entry for the collection of the note and interest.

Short Answer

Expert verified

The debit and credit column of the journal totals$61,200.

Step by step solution

01

Definition of Adjusting Entry

Journal entry prepared by the business entity for updating balances of some temporary accounts is known as adjusting entry. It is generally prepared for deferral and accruals.

02

Journal entries

Date

Accounts and Explanation

Debit $

Credit $

1 Nov 2017

Note receivable

$30,000

Sales revenue

$30,000

31 Dec 2017

Interest receivable

$300

Interest revenue

$30,000脳6%脳212

$300

1 May 2018

Cash

$30,900

Interest receivable

$300

Interest revenue

$30,000脳6%脳412

$600

Note receivable

$30,000

$61,200

$61,200

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Most popular questions from this chapter

Horton Corporation is preparing a bank reconciliation and has identified the following potential reconciling items. For each item, indicate if it is (1) added to balance per bank statement, (2) deducted from balance per bank statement, (3) added to balance per books, or (4) deducted from balance per books.

(a) Deposit in transit \(5,500.

(d) Outstanding checks \)7,422.

(b) Bank service charges \(25.

(e) NSF check returned \)377.

(c) Interest credited to Horton鈥檚 account $31.

(Journalize Various Accounts Receivable Transactions) The balance sheet of Starsky Company at December 31, 2016, includes the following.

Note receivable

\(36,000

Accounts receivable

182,100

Less: Allowance for doubtful accounts

17,300

\)200,800

Transactions in 2017 include the following.

1. Accounts receivable of \(138,000 were collected including accounts of \)60,000, on which 2% sales discounts were allowed.

2. \(5,300 was received in payment of an account which was written off the books as worthless in 2016.

3. Customer accounts of \)17,500 were written off during the year.

4. At year-end, Allowance for Doubtful Accounts was estimated to need a balance of $20,000. This estimate is based on an analysis of aged accounts receivable.

Instructions

Prepare all journal entries necessary to reflect the transactions above.

On June 3, Arnold Company sold to Chester Company merchandise having a sale price of \(3,000 with terms of 2/10, n/60, f.o.b. shipping point. An invoice totaling \)90, terms n/30, was received by Chester on June 8 from John Booth Transport Service for the freight cost. On June 12, the company received a check for the balance due from Chester Company

Instructions

(a) Prepare journal entries on the Arnold Company books to record all the events noted above under each of the following bases.

(1) Sales and receivables are entered at gross selling price.

(2) Sales and receivables are entered at net of cash discounts.

(b) Prepare the journal entry under basis 2, assuming that Chester Company did not remit payment until July 29.

(Recording Bad Debts) Duncan Company reports the following financial information before adjustments.

Debit

Credit

Accounts receivables

\(100,000

Allowance for doubtful accounts

\)2,000

Sales revenue (All on credit)

900,000

Sales return and allowance

50,000

Instructions

Prepare the journal entry to record Bad Debt Expense assuming Duncan Company estimates bad debts at (a) 5% of accounts receivable and (b) 5% of accounts receivable but Allowance for Doubtful Accounts had a $1,500 debit balance.

(Notes Receivable with Unrealistic Interest Rate) On December 31, 2015, Ed Abbey Co. performed environmental consulting services for Hayduke Co. Hayduke was short of cash, and Abbey Co. agreed to accept a $200,000 zero-interest-bearing note due December 31, 2017, as payment in full. Hayduke is somewhat of a credit risk and typically borrows funds at a rate of 10%. Abbey is much more creditworthy and has various lines of credit at 6%.

Instructions

(a) Prepare the journal entry to record the transaction of December 31, 2015, for the Ed Abbey Co.

(b) Assuming Ed Abbey Co.鈥檚 fiscal year-end is December 31, prepare the journal entry for December 31, 2016.

(c) Assuming Ed Abbey Co.鈥檚 fiscal year-end is December 31, prepare the journal entry for December 31, 2017.
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