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College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756

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Chapter
Section
BuyFindarrow_forward

College Accounting, Chapters 1-27

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

Eddie Edwards and Phil Bell own and operate The Second Hand Equipment Shop. The following transactions involving notes and interest were completed during the last three months or 20--:

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REQUIRED

  1. 1. Prepare general journal entries for the transactions.
  2. 2. Prepare necessary adjusting entries for the notes outstanding on December 31.

1.

To determine

Prepare journal entry to record the following transactions.

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.

Prepare journal entry to record the following transactions.

DateAccount titles and ExplanationDebitCredit
October 1Purchases$6,800
     Notes payable$6,800
(To record note issued for inventory purchases)
October 15Notes receivable$2,000
     Sales$2,000
(To record note received for merchandise for sale)
November 1Cash (1)$2,003.11
     Notes receivable$2,000
     Interest revenue (2)$3.11
(To record discount on notes receivable)
November 1Cash (4)$4,925
Discount on notes payable (3)$75
     Notes payable$5,000
(To record issued note for bank loan)
November 20Notes receivable$4,000
     Accounts receivable - L.R$4,000
(To record received note to settle account)
November 30Notes payable$6,800
Interest expense (5)$56.67
     Cash$6,856.67
(To record paid note with interest at maturity)
December 10Accounts payable - RT$3,000
     Notes payable$3,000
(To record issued note to settle account)
December 16Accounts receivable - R.C (6)$2,040
     Cash$2,040
(To record paid bank for dishonoured note)

Table (1)

Working notes:

(1) Calculate cash proceeds.

Cash proceeds =Maturity value Discount amount (Difference in time period)=($2,000+($2,000×6%×60360))($2,020×7%×43360)=$2,020$16

2.

To determine

Prepare adjusting entries for the notes outstanding on 31st December.

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