College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)
College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)
22nd Edition
ISBN: 9781305666160
Author: James A. Heintz, Robert W. Parry
Publisher: Cengage Learning
Question
Chapter 17, Problem 1CP
To determine

Prepare journal entries in the books of both Company M, and other parties like Company R, KC Bank, and Bank L for each of the following transactions.

Expert Solution & Answer
Check Mark

Explanation of Solution

Prepare journal entries in the books of Company M.

DateAccount titles and ExplanationDebitCredit
June 1Notes receivable$3,000
     Accounts receivable$3,000
(To record received note to settle account)
June 20Cash$1,976.67
Discount on notes payable (1)$23.33
     Notes payable$2,000
(To record note issued for bank loan)
July 1Cash (2)$3,009.47
     Notes receivable$3,000
     Interest revenue (3)$9.47
(To record discounted note to Company R)
August 19Notes payable$2,000
Interest expense$23.33
     Cash$2,000
     Discount on notes payable$23.33
(To record note paid at maturity)
August 30No journal entry required

Table (1)

Working notes:

(1) Calculate discount on notes payable.

Discount on notes payable =Notes payable×Interest rate×Time period=$2,000×7%×60360=$23.33

(2) Calculate cash proceeds.

Cash proceeds =Maturity value Discount amount (Difference in time period)=($3,000+($3,000×6%×90360))($3,045×7%×60360)=$3,045$35.53=$3,009.47

(3) Calculate interest revenue.

Interest revenue =Cash proceedsNotes receivable= $3,009.47$3,000=$9.47

As on 1st June:

  • Notes receivable is a current asset, and it is increased. Therefore, debit notes receivable account for $3,000.
  • Accounts receivable is a current asset, and it is decreased. Therefore, credit accounts receivable account for $3,000.

As on 20th June:

  • Cash is a current asset, and it is increased. Therefore, debit cash account for $1,976.67.
  • Discount on notes payable is a contra liability, and it is increased. Therefore, debit discount on notes payable account for $23.33.
  • Notes payable is a current liability, and it is increased. Therefore, credit notes payable account for $2,000.

As on 1st July:

  • Cash is a current asset, and it is increased. Therefore, debit cash account for $3,009.47.
  • Notes receivable is a current asset, and it is decreased. Therefore, credit notes receivable account for $3,000.
  • Interest revenue is a component of stockholders’ equity, and it increases revenue accounts. Therefore, credit interest revenue account for $9.47.

As on 19th August:

  • Notes payable is a current liability, and it is decreased. Therefore, debit notes payable account for $2,000.
  • Interest expense is a component of stockholders’ equity, and it increases expense accounts. Therefore, debit interest expense account for $23.33.
  • Cash is a current asset, and it is decreased. Therefore, credit cash account for $2,000.
  • Discount on notes payable is a contra liability, and it is decreased. Therefore, credit discount on notes payable account for $23.33.

Prepare journal entries in the books of Company R.

DateAccount titles and ExplanationDebitCredit
June 1Accounts payable - Company M$3,000
     Notes payable$3,000
(To record notes issued to settle account)
August 30Notes payable$3,000
Interest expense$45
     Cash$3,045
(To record notes paid to L bank)

Table (2)

As on 1st June:

  • Accounts payable is a current liability, and it is decreased. Therefore, debit accounts payable account for $3,000.
  • Notes payable is a current liability, and it is increased. Therefore, credit notes payable account for $3,000.

As on 30th August:

  • Notes payable is a current liability, and it is decreased. Therefore, debit notes payable account for $3,000.
  • Interest expense is a component of stockholders’ equity, and it increase expense accounts. Therefore, debit interest expense account for $45.
  • Cash is a current asset, and it is decreased. Therefore, credit cash account for $3,045.

Prepare journal entries in the books of KC Bank.

DateAccount titles and ExplanationDebitCredit
June 20Notes receivable$2,000
     Cash$1,976.67
     Discount on notes receivable$23.33
(To record notes received for loan)
August 19Cash$2,000
Discount on notes receivable$23.33
     Notes receivable$2,000
     Interest revenue$23.33
(To record notes collected from Company M)

Table (3)

As on 20th June:

  • Notes receivable is a current asset, and it is increased. Therefore, debit notes receivable account for $2,000.
  • Cash is a current asset, and it is decreased. Therefore, credit cash account for $1,976.67.
  • Discount on notes receivable is a contra asset, and it is increased. Therefore, credit discount on notes receivable account for $23.33.

As on 19th August:

  • Cash is a current asset, and it is increased. Therefore, debit cash account for $2,000.
  • Discount on notes receivable is a contra asset, and it is decreased. Therefore, debit discount on notes receivable account for $23.33.
  • Notes receivable is a current asset, and it is decreased. Therefore, credit notes receivable account for $2,000.
  • Interest revenue is a component of stockholders’ equity, and it increase revenue accounts. Therefore, credit interest revenue account for $23.33.

Prepare journal entries in the books of L Bank.

DateAccount titles and ExplanationDebitCredit
July 1Notes receivable$3,000
Interest receivable$9.47
     Cash$3,009.47
(To record discounted note accepted)
August 30Cash$3,045
     Notes receivable$3,000
      Interest receivable$9.47
      Interest revenue$35.53
(To record note collected from Company R)

Table (4)

As on 1st July:

  • Notes receivable is a current asset, and it is increased. Therefore, debit notes receivable account for $3,000.
  • Interest receivable is a current asset, and it is increased. Therefore, debit interest receivable account for $9.47.
  • Cash is a current asset, and it is decreased. Therefore, credit cash account for $3,009.47.

As on 30th August:

  • Cash is a current asset, and it is increased. Therefore, debit cash account for $3,045.
  • Notes receivable is a current asset, and it is decreased. Therefore, credit notes receivable account for $3,000.
  • Interest receivable is a current asset, and it is decreased. Therefore, credit interest receivable account for $9.47.
  • Interest revenue is a component of stockholders’ equity, and it increase revenue accounts. Therefore, credit interest revenue account for $35.53.

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Chapter 17 Solutions

College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)

Ch. 17 - Prob. 1CECh. 17 - Prob. 2CECh. 17 - Prob. 3CECh. 17 - Prob. 1RQCh. 17 - Prob. 2RQCh. 17 - Prob. 3RQCh. 17 - Prob. 4RQCh. 17 - Prob. 5RQCh. 17 - Prob. 6RQCh. 17 - Prob. 7RQCh. 17 - Prob. 8RQCh. 17 - Prob. 9RQCh. 17 - On which notes receivable and notes payable is it...Ch. 17 - Prob. 11RQCh. 17 - When a business borrows money from a bank on a...Ch. 17 - What kind of account is Discount on Notes Payable,...Ch. 17 - Prob. 14RQCh. 17 - Prob. 15RQCh. 17 - TERM OF A NOTE Calculate total time in days for...Ch. 17 - Prob. 2SEACh. 17 - DETERMINING DUE DATE Determine the due date for...Ch. 17 - JOURNAL ENTRIES (NOTE RECEIVED, RENEWED, AND...Ch. 17 - Prob. 5SEACh. 17 - JOURNAL ENTRIES (ACCRUED INTEREST RECEIVABLE) At...Ch. 17 - JOURNAL ENTRIES (NOTE ISSUED, RENEWED, AND PAID)...Ch. 17 - JOURNAL ENTRIES (NOTE ISSUED FOR BANK LOAN)...Ch. 17 - JOURNAL ENTRIES (ACCRUED INTEREST PAYABLE) At the...Ch. 17 - NOTES RECEIVABLE ENTRIES J. K. Pratt Co. had the...Ch. 17 - NOTES RECEIVABLE DISCOUNTING Marienau Suppliers...Ch. 17 - ACCRUED INTEREST RECEIVABLE The following is a...Ch. 17 - NOTES PAYABLE ENTRIES Milo Radio Shop had the...Ch. 17 - ACCRUED INTEREST PAYABLE The following is a list...Ch. 17 - TERM OF A NOTE Calculate total time in days for...Ch. 17 - CALCULATING INTEREST Using 360 days as the...Ch. 17 - DETERMINING DUE DATE Determine the due date for...Ch. 17 - JOURNAL ENTRIES (NOTE RECEIVED, RENEWED, AND...Ch. 17 - JOURNAL ENTRIES (NOTE RECEIVED, DISCOUNTED,...Ch. 17 - JOURNAL ENTRIES (ACCRUED INTEREST RECEIVABLE) At...Ch. 17 - JOURNAL ENTRIES (NOTE ISSUED, RENEWED, AND PAID)...Ch. 17 - JOURNAL ENTRIES (NOTE ISSUED FOR BANK LOAN)...Ch. 17 - JOURNAL ENTRIES (ACCRUED INTEREST PAYABLE) At the...Ch. 17 - NOTES RECEIVABLE ENTRIES M. L. DiMaurizio had the...Ch. 17 - NOTES RECEIVABLE DISCOUNTING Madison Graphics had...Ch. 17 - ACCRUED INTEREST RECEIVABLE The following is a...Ch. 17 - Prob. 13SPBCh. 17 - ACCRUED INTEREST PAYABLE The following is a list...Ch. 17 - Prob. 1MYWCh. 17 - Rochelle needed to borrow 3,000 for three months...Ch. 17 - Eddie Edwards and Phil Bell own and operate The...Ch. 17 - Prob. 1CP
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