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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, DISCOUNTED, DISHONORED, AND COLLECTED) Prepare general journal entries for the following transactions:

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To determine

Prepare the 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 journal entry to record received 120-days, 6% note in payment for accounts receivable balance of $3,000.

DateAccount titles and ExplanationDebitCredit
April 6Notes receivable$3,000  
      Accounts receivable $3,000
 (To record received note to settle account)  

Table (1)

  • 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.

Prepare journal entry to record discounted the note at a rate of 7%.

DateAccount titles and ExplanationDebitCredit
April 26Cash$3,000.50  
      Notes receivable (1) $3,000
       Interest revenue (2) $0.50
 (To record received payment of note with interest)  

Table (2)

Working notes:

(1)Calculate cash proceeds.

Cash proceeds =Maturity value Discount amount (Difference in time period)=($3,000+($3,000×6%×120360))($3,060×7%×100360)=$3,060$59.50=$3,000.50

(2)Calculate interest revenue.

Interest revenue =Cash proceedsNotes receivable= $3,000.50$3,000=$0.50

  • Cash is a current asset, and it is increased. Therefore, debit cash account for $3,000.50.
  • 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 the revenue accounts. Therefore, credit interest revenue account for $.050.

Prepare journal entry to record received a 30-day, 7% note in payment for accounts receivable balance of $900.

DateAccount titles and ExplanationDebitCredit
April 6Notes receivable$900  
      Accounts receivable $900
 (To record received note to settle account)  

Table (3)

  • Notes receivable is a current asset, and it is increased. Therefore, debit notes receivable account for $900.
  • Accounts receivable is a current asset, and it is decreased. Therefore, credit accounts receivable account for $900.

Prepare journal entry to record 30 day, 7% note is dishonored

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