Question

Sleepy Recliner Chairs completed the following selected transactions:

2018

Jul. 1 Sold merchandise inventory to Stan-Mart, receiving a \(41,000, nine-month, 8%

note. Ignore Cost of Goods Sold.

Oct. 31 Recorded cash sales for the period of \)24,000. Ignore Cost of Goods Sold.

Dec. 31 Made an adjusting entry to accrue interest on the Stan-Mart note.

31 Made an adjusting entry to record bad debts expense based on an aging

of accounts receivable. The aging schedule shows that \(13,800 of accounts

receivable will not be collected. Prior to this adjustment, the credit balance in

Allowance for Bad Debts is \)11,800.

2019

Apr. 1 Collected the maturity value of the Stan-Mart note.

Jun. 23 Sold merchandise inventory to Appeal, Corp., receiving a 60-day, 6% note for

\(7,000. Ignore Cost of Goods Sold.

Aug. 22 Appeal, Corp. dishonoured its note at maturity; the business converted the

maturity value of the note to an account receivable.

Nov. 16 Loaned \)17,000 cash to Crosby, Inc., receiving a 90-day, 16% note.

Dec. 5 Collected in full on account from Appeal, Corp.

31 Accrued the interest on the Crosby, Inc. note.

Record the transactions in the journal of Sleepy Recliner Chairs. Explanations are not

required. (Round to the nearest dollar.)

Short answer

Answer:

Journal entries are recorded in Steps 2 and 3.

Step-by-step solution

Definition of the bad debts allowance method

This is a method in which the company makes estimates of the number of bad debts before the amount becomes due.

Journal entries for Year 2018

Date	Particulars	Debit	Credit
July 1, 2018	Notes Receivable- Stan-Mart	$41,000
	Sales Revenue		$41,000
	(Being entry to record sale)
October 31, 2018	Cash	$24,000
	Sales Revenue		$24,000
	(To record cash sales)
December 31, 2018	Interest Receivable ($41,000*8%*6/12)	$1,640
	Interest Revenue		$1,640
	(To record interest revenue)
December 31, 2018	Bad Debt Expense	$2,000
	Allowance for Bad Debts		$2,000
	(Entry to record bad debt expense)

Journal entries for Year 2019

Date	Particulars	Debit	Credit
April 1, 2019	Cash	$43,460
	Interest Revenue ($41,000*8%*3/12)		$820
	Interest Receivable		$1,640
	Notes Receivable- Stan Mart		$41,000
	(To record the interest collected on maturity)
June 23, 2019	Notes Receivable- Appeal corp.	$7,000
	Sales Revenue		$7,000
	(To record the sale)
August 22, 2019	Accounts Receivable- Appeal corp.	$7,070
	Interest Revenue ($7,000*6%*60/365)		$69
	Notes Receivable- Appeal corp.		$7,000
	(To record the dishonouring of notes)
November 16, 2019	Notes Receivable- Crosby Inc.	$17,000
	Cash		$17,000
	(To record the issue of notes)
December 5, 2019	Cash	$7,069
	Accounts Receivables- Appeal Corp.		$7,069
	(To record the amount collected)
December 31, 2019	Interest Receivable ($17,000*16%*45/365)	$335
	Interest Revenue		$335
	(To record interest revenue)