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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

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 $22,000.

DateAccount titles and ExplanationDebitCredit
May 22Notes receivable $22,000  
      Sales $22,000
 (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 $22,000.
  • sale is a component of stockholders’ equity, and it increases the revenue accounts. Therefore, credit sales account for $22,000.

Prepare a journal entry to record interest received $110 on the old note, and old note is renewed for 30 days at 7%.

DateAccount titles and ExplanationDebitCredit
June 21Cash$110  
 Notes receivable (New note)$22,000  
      Notes receivable (Old note) $22,000
       Interest revenue $110
 (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 $110.
  • Notes receivable (new note) is a current asset, and it is increased. Therefore, debit notes receivable (new note) account for $22,000.
  • Notes receivable (old note) is a current asset, and it is decreased. Therefore, credit notes receivable (old note) account for $22,000.
  • Interest revenue is a component of stockholders’ equity, and it increases the revenue accounts. Therefore, credit interest revenue account for $110.

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

DateAccount titles and ExplanationDebitCredit
July 21Cash$22,128.33  
      Notes receivable $22,000
       Interest revenue (1) $128.33
 (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=$22,000×7%×30360=$128.33 

  • Cash is a current asset, and it is increased. Therefore, debit cash account for $22,128.33.
  • Notes receivable is a current asset, and it is decreased. Therefore, credit notes receivable account for $22,000.
  • Interest revenue is a component of stockholders’ equity, and it increases the revenue accounts

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