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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

JOURNAL ENTRIES (NOTE RECEIVED, RENEWED, AND COLLECTED) Prepare general journal entries for the following transactions:

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To determine

Prepare journal entries to record the following transactions.

Explanation

Notes receivable:

Notes Receivable is a written promise to receive a certain amount on a future date, with certain percentage of interest. Companies use to issue notes receivable to meet short-term financing needs.

Prepare a journal entry to record received a note for merchandise sale of $20,000.

DateAccount titles and ExplanationDebitCredit
January 16Notes receivable $20,000  
      Sales $20,000
 (To record received note for merchandise sale)  

Table (1)

  • Notes receivable is a current asset, and it is increased. Therefore, debit notes receivable account for $20,000.
  • sale is a component of stockholders’ equity, and it increases the revenue accounts. Therefore, credit sales account for $20,000.

Prepare a journal entry to record interest received $100 on the old note, and old note is renewed for 30 days at 7%.

DateAccount titles and ExplanationDebitCredit
February 15Cash$100  
 Notes receivable (New note)$20,000  
      Notes receivable (Old note) $20,000
       Interest revenue $100
 (To record received new note plus interest on old note)  

Table (2)

  • Cash is a current asset, and it is increased. Therefore, debit cash account for $100.
  • Notes receivable (new note) is a current asset, and it is increased. Therefore, debit notes receivable (new note) account for $20,000.
  • Notes receivable (old note) is a current asset, and it is decreased. Therefore, credit notes receivable (old note) account for $20,000.
  • Interest revenue is a component of stockholders’ equity, and it increases the revenue accounts. Therefore, credit interest revenue account for $100.

Prepare a journal entry to record principal and interest received on new notes receivable.

DateAccount titles and ExplanationDebitCredit
March 17Cash$21,116.67  
      Notes receivable $20,000
       Interest revenue (1) $116.67
 (To record received payment of note with interest)  

Table (3)

Working note:

(1)Calculate interest revenue.

Interest revenue =New notes receivable ×Interest rate×Time period=$20,000×7%×30360=$116.67 

  • Cash is a current asset, and it is increased. Therefore, debit cash account for $21,116.67.
  • Notes receivable is a current asset, and it is decreased. Therefore, credit notes receivable account for $20,000.
  • Interest revenue is a component of stockholders’ equity, and it increases the revenue accounts

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