Question BE7-8 Dold Acrobats lent \(16,529 to D... [FREE SOLUTION]

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.

Expert verified

Both sides of the Journal total$43,471.

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

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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	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

Installment accounts due in 2018	\)23,000
Installment accounts due after 2018	34,000
Overpayment to vendors	2,640
Due from regular customers, of which $40,000 represents account pledge as security for a bank loan	79,000
Advances to employees	1,500
Advance to the subsidiary company (due in 2018)	81,000