Question: P7-8 (Notes Receivable Journal Entrie... [FREE SOLUTION]

Chapter 7: Question: P7-8 (page 373)

(Notes Receivable Journal Entries) On December 31, 2017, Oakbrook Inc. rendered services to Beghun Corporation at an agreed price of $102,049, accepting $40,000 down and agreeing to accept the balance in four equal installments of $20,000 receivable each December 31. An assumed interest rate of 11% is imputed.
Instructions
Prepare the entries that would be recorded by Oakbrook Inc. for the sale and the receipts and interest on the following dates (prepare an amortization schedule). (Assume that the effective-interest method is used for amortization purposes.)
(a) December 31, 2017.
(b) December 31, 2018.
(c) December 31, 2019.
(d) December 31, 2020.
(e) December 31, 2021.

Short Answer

Expert verified

Debit and credit side of journal totals$200,000.

Step by step solution

Definition of Interest Rate

A percentage rate that determines the finance charges to be paid to the lender by the borrower is known as interest rate.

Journal Entries

Date	Accounts and Explanation	Debit $	Credit $
31 Dec 2017	Cash	$40,000
	Note receivable	$62,049
	Service revenue		$102,049

31 Dec 2018	Cash	$20,000
	Note receivable		$20,000

	Note receivable	$6,825.39
	Interest revenue		$6,825.39

31 Dec 2019	Cash	$20,000
	Note receivable		$20,000

	Note receivable	$5,376.18
	Interest revenue		$5,376.18

31 Dec 2020	Cash	$20,000
	Note receivable		$20,000

	Note receivable	$3,767.56
	Interest revenue		$3,767.56

31 Dec 2021	Cash	$20,000
	Note receivable		$20,000

	Note receivable	$1,981.99
	Interest revenue		$1,981.99
		$200,000	$200,000

Working note: Amortization Table

Date	Cash received	Interest Revenue @ 11%	Carrying amount of note
31 Dec 2017	-	-	$62,049
31 Dec 2018	$20,000	$6,825.39	$48,874.39
31 Dec 2019	$20,000	$5,376.18	$34,250.57
31 Dec 2020	$20,000	$3,767.56	$18018.13
31 Dec 2021	$20,000	$1,981.99	$0

Note: Carrying amount is calculated by deducting the amount of cash received from the sum of the previous year鈥檚 carrying amount and interest revenue for the period.

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Due from regular customer	\)523,000
Refund receivable on prior year鈥檚 income taxes (an established claim)	15,500
Travel advance to employees	22,000
Loan to wholly owned subsidiary	45,500
Advance to creditor for goods ordered	61,000
Accounts receivables assigned security for loans payable	75,000
Notes receivable past due plus interest on these notes	47,000
Total	$789,000

(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.

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	-

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Short Answer

Step by step solution

Definition of Interest Rate

Journal Entries

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