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Chapter 8: Q23E (page 472)

Question:

Journalizing note receivable transactions including a dishonored note

On September 30, 2018, Team Bank loaned $94,000 to Kendall Warner on a one-year, 6% note. Team’s fiscal year ends on December 31.

Requirements

1. Journalize all entries for Team Bank related to the note for 2018 and 2019.

2. Which party has a

a. note receivable?

b. note payable?

c. interest revenue?

d. interest expense?

3. Suppose that Kendall Warner defaulted on the note. What entry would the Team record for the dishonored note?

Short Answer

Expert verified

Answer:

  1. Journal entries are recorded in Step 1.
  2. a. note receivable - Team Bank

2b. note payable- Kendall Warner

2c. interest revenue- Team Bank

2d. interest expense - Kendall Warner

Journal entry is recorded in Step 4.

Step by step solution

01

Journal entries

Date

Particulars

Debit

Credit

September 30

Notes Receivables- Kendall Warner

$94,000

Cash

$94,000

(Sold goods on account)

December 31

Interest Receivable

$1,410

Interest Revenue ($94,000 x6%x3/12)

$1,410

(Accrued interest revenue)

2019

September 30

Cash

$99,640

Notes Receivable- Kendall Warner

$94,000

Interest Receivable

$1,410

Interest Revenue ($94,000 x6%x9/12)

$4,230

(Collected note receivable on maturity)

02

Party Details

Party borrowing the money record the notes as notes payable, however party providing the funds record it as accounts receivable. Borrower records interest payable and lender records interest receivable.

03

Entry for the default of the loan

Date

Particulars

Debit

Credit

September 30

Accounts Receivable- Kendall Warner

$99,640

Notes Receivable- Kendall Warner

$94,000

Interest Receivable

$1,410

Interest Revenue

$4,230

(Note was dishonored)

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Most popular questions from this chapter

Question: Endurance Running Shoes reports the following:

2018

May 6

Recorded credit sales of \(102,000. Ignore Cost of Goods Sold.

Jul. 1

Loaned \)18,000 to Jerry Paul, an executive with the company, on a one-year, 7% note

Dec. 31

Accrued interest revenue on the Paul note

2019

Jul. 1

Collected the maturity value of the Paul note


Journalize all entries required for Endurance Running Shoes.

At January 1, 2018, Hilltop Flagpoles had Accounts Receivable of \(28,000, and Allowance for Bad Debts had a credit balance of \)3,000. During the year, Hilltop Flagpoles recorded the following:

a. Sales of \(185,000 (\)164,000 on account; \(21,000 for cash). Ignore Cost of Goods Sold.

b. Collections on account, \)135,000.

c. Write-offs of uncollectible receivables, $2,300.

Requirements

1. Journalize Hilltop’s transactions that occurred during 2018. The company uses the allowance method.

2. Post Hilltop’s transactions to the Accounts Receivable and Allowance for Bad Debts T-accounts.

3. Journalize Hilltop’s adjustment to record bad debts expense assuming Hilltop estimates bad debts as 3% of credit sales. Post the adjustment to the appropriate T-accounts.

4. Show how Hilltop Flagpoles will report net accounts receivable on its December 31, 2018, balance sheet.

Collecting a receivable previously written off—direct write-off method

Spring Garden Greenhouse had trouble collecting its account receivable from Steve Stone. On June 19, 2018, Spring Garden Greenhouse finally wrote off Stone’s \(600 account receivable. On December 31, Stone sent a \)600 check to Spring Garden Greenhouse.

Journalize the entries required for Spring Garden Greenhouse, assuming Spring Garden Greenhouse uses the direct write-off method.

On August 1, Taylor Company lent $80,000 to L. King on a 90-day, 5% note.

12. Journalize for Taylor Company the lending of the money on August 1.

13. Journalize the collection of the principal and interest at maturity. Specify the date. Round interest to the nearest dollar.

Applying the allowance method (percent-of-receivables) to account for Uncollectibles

The Accounts Receivable balance for Lake, Inc. at December 31, 2017, was \(20,000. During 2018, Lake earned revenue of \)454,000 on account and collected \(325,000 on account. Lake wrote off \)5,600 receivables as uncollectible. Industry experience suggests that uncollectible accounts will amount to 5% of accounts receivable.

Requirements

1. Assume Lake had an unadjusted \(2,700 credit balance in Allowance for Bad Debts at December 31, 2018. Journalize Lake’s December 31, 2018, adjustment to record bad debts expense using the percent-of-receivables method.

2. Assume Lake had an unadjusted \)2,400 debit balance in Allowance for Bad Debts at December 31, 2018. Journalize Lake’s December 31, 2018, adjustment to record bad debts expense using the percent-of-receivables method
See all solutions

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