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College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756

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Chapter
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BuyFindarrow_forward

College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756
Textbook Problem

NOTES RECEIVABLE DISCOUNTING Madison Graphics had the following notes receivable transactions:

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REQUIRED

Record the transactions in a general journal.

To determine

Prepare a journal entry to record Suppliers MG.

Explanation

Note receivable:

Note receivable refers to a written promise for the amounts to be received within a stipulated period of time. This written promise is issued by a debtor or, borrower to the lender or creditor. Notes receivable is an asset of a business.

DateAccount titles and ExplanationDebitCredit
May 1Accounts receivable -L.C$5,600
     Sales$5,600
(To record sale made on account)
May 20Notes receivable$5,600
     Accounts receivable - L.C$5,600
(To record received note to settle  account)
May 30Cash (1)$5,589.27
Interest expense (2)$10.73
     Notes receivable$5,600
(To record discount on notes receivable)
June 20Notes receivable$2,400
     Sales$2,400
(To record received note for merchandise sale)
July 25Cash (3)$2,411.37
     Notes receivable$2,400
      Interest revenue (4)$11.37
(To record received payment of note with interest)
August 19Accounts receivable - P.A$2,454
     Cash$2,454
(To record cash paid for dishonoured note)
August 31Cash$2,458.91
     Accounts receivable - D. L$2,454
      Interest revenue (5)$4.91
(To record Collected dishonoured note with interest)
September 1Accounts receivable - B.F$6,400
     Sales$6,400
(To record sale made on account)
September 12Cash$400
Notes receivable$5,600
     Accounts receivable - A.B$6,000
(To record cash received and note to settle account)
October 12Cash (6)$432.50
Notes receivable (new note)$5,600
     Notes receivable (old note)$6,000
      Interest revenue (7)$32.50
(To record received new note plus interest on old note)
October 26Cash$5,607.42
     Notes receivable$5,600
      Interest revenue $7.42
(To record received payment of note with interest)
December 11Accounts receivable – B.F$5,695.33
     Cash$5,695.33
(To record cash paid for dishonoured note)
December 27Cash$5,713.05
     Accounts receivable - A.B$5,695.33
     Interest revenue (8)$17.72
(To record Collected dishonoured note with interest)

Table (1)

Working notes:

(1)Calculate cash proceeds.

Cash proceeds =Maturity value Discount amount (Difference in time period)=($5,600+($5,600×6%×90360))($5,684×7.5%×80360)=$5,684$94.73=$5,589.27

(2)Calculate interest expense.

Interest expense =Notes payableCash proceeds= $5,600$5,589

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