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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

Prepare general journal entries for the following transactions:

  1. (a) Received $250 plus a 60-day, 7% note for $1,000 in payment for an account receivable balance of $1,250.
  2. (b) Received $90 interest plus $500 principal on an old $3,000 note; the old note is renewed for 60 days at 8%.
  3. (c) Discounted at a rate of 8% a 120-day, 7% note issued 30 days ago for $6,000.

To determine

Prepare journal entries to record the following transactions.

Explanation

(a)

Prepare the journal entry to record cash received and note settle account.

No.Account titles and ExplanationDebitCredit
(a)Cash$250 
 Notes receivable$1,000 
     Accounts receivable $1,250
 (To record cash received and settle to account)  

Table (1)

  • Cash is a current asset, and it is increased. Therefore, debit cash account for $250.
  • Notes receivable is a current asset, and it is increased. Therefore, debit notes receivable account for $1,000.
  • Accounts receivable is a current asset, and it is decreased. Therefore, credit accounts receivable account for $1,250.

(b)

Prepare journal entry to record receive new note, partial payment with interest on old note.

No.Account titles and ExplanationDebitCredit
(b)Cash$590 
 Notes receivable (New note)$2,500 
     Notes receivable (Old note) $3,000
      Interest revenue $90
 (To record received note plus partial payment and interest on old note)  

Table (2)

  • Cash is a current asset, and it is increased. Therefore, debit cash account for $590.
  • Notes receivable (new) is a current asset, and it is increased. Therefore, debit new notes receivable account for $2,500.
  • Notes receivable (old) is a current asset, and it is decreased. Therefore, credit new notes receivable account for $3,000.
  • Interest revenue is a component of stockholders’ equity, and it is increased. Therefore, credit interest revenue account for $90.

(c)

Prepare journal entry to record receivable note receivable, interest revenue with discount on notes.

No.Account titles and ExplanationDebitCredit
(c)Cash$6,017.20 
     Notes receivable $6,000
     Interest revenue $17.20
 (To record discount on notes receivable)  

Table (3)

Working notes:

(1)Calculate maturity value of note receivable...

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