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Chapter 7: Question BE7-8 (page 363)

Dold Acrobats lent \(16,529 to Donaldson, Inc., accepting Donaldson鈥檚 2-year, \)20,000, zero-interest-bearing note. The implied interest rate is 10%. Prepare Dold鈥檚 journal entries for the initial transaction, recognition of interest each year, and the collection of $20,000 at maturity.

Short Answer

Expert verified

Both sides of the Journal total$43,471.

Step by step solution

01

Definition of Maturity Date

The specified date on which the loan due will be paid along with any accrued interest is the maturity date.

02

Journal Entries

Date

Accounts and Explanation

Debit $

Credit $

1

Note receivable

$20,000

Discount on note receivable

$3,471

Cash

$16,529

2

Discount on note receivable

$1,653

Interest revenue$16529脳10%

$1,653

3

Discount on note receivable$16529+$1,653脳10%

$1,818

Interest revenue

$1,818

4

Cash

$20,000

Note receivable

$20,000

$43,471

$43,471

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Most popular questions from this chapter

3. Which of the following statements is false?

(a) Receivables include equity securities purchased by the company.

(b) Receivables include credit card receivables.

(c) Receivables include amounts owed by employees as a result of company loans to employees.

(d) Receivables include amounts resulting from transactions with customers.

Computing Bad Debts and Preparing Journal Entries) The trial balance before adjustment of Taylor Swift Inc. shows the following balances.

Debit

Credit

Accounts Receivable

\(90,000

Allowance for Doubtful Accounts

1,750

Sales revenue (all on credit)

\)680,000

Instructions

Give the entry for estimated bad debts assuming that the allowance is to provide for doubtful accounts on the basis of (a) 4% of gross accounts receivable and (b) 5% of gross accounts receivable and Allowance for Doubtful Accounts has a $1,700 credit balance.

(Petty Cash) Carolyn Keene, Inc. decided to establish a petty cash fund to help ensure internal control over its small cash expenditures. The following information is available for the month of April.

1. On April 1, it established a petty cash fund in the amount of \(200.

2. A summary of the petty cash expenditures made by the petty cash custodian as of April 10 is as follows

Delivery charges paid on merchandise purchased

\)60

Supplies Purchased and used

25

Postage expenses

33

I.O.U from employees

17

Miscellaneous expenses

36

The petty cash fund was replenished on April 10. The balance in the fund was \(27.

3. The petty cash fund balance was increased \)100 to $300 on April 20.

Instructions

Prepare the journal entries to record transactions related to petty cash for the month of April

(Petty Cash) The petty cash fund of Fonzarelli鈥檚 Auto Repair Service, a sole proprietorship, contains the following.

1. Coins and Currency

\(15.20

2. Postage Stamps

2.90

3. An I.O.U from Cunningham, an employee, for cash advance

40

4. Check payable to Fonzarelli鈥檚 Auto Repair from Pottsie Weber, an employee, marked NSF

34

5. Vouchers for the following:

Stamps

20

Two Rose Bowl tickets for Nick Fonzarelli

170

Printer cartridge

14.35

204.35

\)296.45

The general ledger account Petty Cash has a balance of $300.

Instructions

Prepare the journal entry to record the reimbursement of the petty cash fund.

(Expected Cash Flows) On January 1, 2017, Botosan Company issued a \(1,200,000, 5-year, zero-interest bearing note to National Organization Bank. The note was issued to yield 8% annual interest. Unfortunately, during 2018 Botosan fell into financial trouble due to increased competition. After reviewing all available evidence on December 31, 2018, National Organization Bank decided that the loan was impaired. Botosan will probably pay back only \)800,000 of the principal at maturity.

Instructions

(a) Prepare journal entries for both Botosan Company and National Organization Bank to record the issuance of the note on January 1, 2017. (Round to the nearest $10.)

(b) Assuming that both Botosan Company and National Organization Bank use the effective-interest method to amortize the discount, prepare the amortization schedule for the note.

(c) Under what circumstances can National Organization Bank consider Botosan鈥檚 note to be impaired?

(d) Compute the loss National Organization Bank will suffer from Botosan鈥檚 financial distress on December 31, 2018. What journal entries should be made to record this loss?
See all solutions

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