Question

Prepare journal entries to record the following selected transactions of Ridge Company.

Mar. 21 Accepted a $9,500, 180-day, 8% note dated March 21 from Tamara Jackson in granting a time extension on her past-due account receivable.

Sep. 17 Jackson dishonored her note when it is presented for payment.

Dec. 31 After exhausting all legal means of collection, Ridge Company wrote off Jackson’s account against the Allowance for Doubtful Accounts.

Short answer

The principal amount of the notes receivablesdepicts theactual face value of the note that the organization accepts on behalf of the debtor.

Step-by-step solution

Journal entry

Date	Particulars	Debit	Credit
Mar 21	Notes receivables	$9,500
	Accounts receivables		$9,500
	(To record the notes acceptance)
Sep 17	Accounts receivables	$9,880
	Notes receivables		$9,500
	Interest revenue		$380
	(To record the interest on note)
Dec 31	Allowance for doubtful accounts	$9,880
	Accounts receivables		$9,880
	(To record the doubtful accounts)

Notes to accounts

$\begin{array}{rcl}\mathrm{Interest}\mathrm{revenue}& =& \mathrm{Principal}\times \mathrm{Rate}\mathrm{of}\mathrm{interest}\times \frac{\mathrm{Number}\mathrm{of}\mathrm{days}}{360}\\ & =& \$9,500\times \frac{8}{100}\times \frac{180}{360}\\ & =& \$380\end{array}$