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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

On September 30, 2016, Rolen Machinery Co. sold a machine and accepted the customer鈥檚 zero-interest-bearing note. Rolen normally makes sales on a cash basis. Since the machine was unique, its sales price was not determinable using Rolen鈥檚 normal pricing practices.

After receiving the first of two equal annual installments on September 30, 2017, Rolen immediately sold the note with recourse. On October 9, 2018, Rolen received notice that the note was dishonored, and it paid all amounts due. At all times prior to default, the note was reasonably expected to be paid in full.

Instructions

(c) How should Rolen account for the effects of the note being dishonored?

(Bank Reconciliation and Adjusting Entries) Angela Lansbury Company deposits all receipts and makes all payments by check. The following information is available from the cash records.

June 30 Bank Reconciliation Statement

Balance per bank

\(7,000

Add: Deposit in transit

1,540

Less: Outstanding checks

(2,000)

Balance per books

\)6,540

Month of July Results

Per Bank

Per Books

Balance July 31

\(8,650

\)9,250

July Deposits

5,000

5,810

July Checks

4,000

3,100

July note collected (not included in July deposits)

1,000

-

July bank service charge

15

-

July NSF check from a customer, returned by the bank (recorded by bank as a charge)

335

-

Instructions

(a) Prepare a bank reconciliation going from balance per bank and balance per book to correct cash balance.

(b) Prepare the general journal entry or entries to correct the Cash account.

Answer

(Bad-Debt Reporting) Presented below is information related to the Accounts Receivable accounts of Gulistan Inc. during the current year 2017.

1. An aging schedule of the accounts receivable as of December 31, 2017, is as follows.

Age

Net Debit Balance

% to be applied after correction is made

Under 60-days

\(172,342

1%

60-90 days

136,490

3%

91-120 days

39,924

6%

Over 120 days

23,644

\)3,700 definitely uncollectible; estimated remainder uncollectible is 25%

\(372,400

*The \)3,240 write-off of receivables is related to the 91-to-120 day category.

2. The Accounts Receivable control account has a debit balance of \(372,400 on December 31, 2017.

3. Two entries were made in the Bad Debt Expense account during the year: (1) a debit on December 31 for the amount credited to Allowance for Doubtful Accounts, and (2) a credit for \)3,240 on November 3, 2017, and a debit to Allowance for Doubtful Accounts because of a bankruptcy.

4. Allowance for Doubtful Accounts is as follows for 2017.

Allowance for Doubtful Accounts

Nov 3

Uncollectible accounts written off

3,240

Jan 1

Beginning balance

8,750

Dec 31

5% of \(372,400

18,620

5. A credit balance exists in Accounts Receivable (60鈥�90 days) of \)4,840, which represents an advance on a sales contract.

Instructions

Assuming that the books have not been closed for 2017, make the necessary correcting entries.

Use the information presented in BE7-16 for Horton Corporation. Prepare any entries necessary to make Horton鈥檚 accounting records correct and complete.

Use the information presented in BE7-12 for Arness Woodcrafters but assume that the recourse liability has a fair value of \(4,000, instead of \)8,000. Prepare the journal entry and discuss the effects of this change in the value of the recourse liability on Arness鈥檚 financial statements.
See all solutions

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