1.
To record: The acceptance of the note on December 1, 2018.
1.
Answer to Problem 5.8AP
Date | Account Title and Explanation | Debit($) | Credit($) | |
December 1, 2018. | Notes receivable (1) | 90,000 | ||
Service revenue | 90,000 | |||
(To record the services provided and acceptance of note) |
Table (1)
Explanation of Solution
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 lender or creditor. Notes receivable is an asset of a business.
- Notes receivable is an asset and increased it. So, debit notes
receivable account. - Service revenue is a component of stock holders’ equity and increased it. So credit service revenue account.
2.
To record: The interest collected on December 1, for 2019 and 2020 and the adjustment for interest revenue on December 31, 2018, 2019 and 2020.
2.
Answer to Problem 5.8AP
Journal entry for adjustment of interest receivable:
Date | Account Title and Explanation | Debit ($) | Credit ($) | |
December 31, 2018 | Interest receivable (1) | 750 | ||
Interest revenue | 750 | |||
(To record adjustment for accrued interest) |
Table (2)
Journal entry for receipt of annual interest:
Date | Account Title and Explanation | Debit ($) | Credit ($) | |
December 1, 2019 | Cash | 9,000 | ||
2018 | Interest receivable (1) | 750 | ||
Interest revenue (2) | 8,250 | |||
(To record receipt of annual interest) |
Table (3)
Journal entry for adjustment for accrues interest:
Date | Account Title and Explanation | Debit ($) | Credit ($) | |
December 31, 2019 | Interest receivable (1) | 750 | ||
Interest revenue | 750 | |||
(To record adjustment for accrued interest) |
Table (4)
Journal entry for receipt of annual interest:
Date | Account Title and Explanation | Debit ($) | Credit ($) | |
December 1, 2020 | Cash | 9,000 | ||
2019 | Interest receivable (1) | 750 | ||
Interest revenue (2) | 8,250 | |||
(To record receipt of annual interest) |
Table (5)
Journal entry for adjustment for accrues interest:
Date | Account Title and Explanation | Debit ($) | Credit ($) | |
December 31, 2020 | Interest receivable (1) (2019) | 750 | ||
Interest revenue | 750 | |||
(To record adjustment for accrued interest) |
Table (6)
Explanation of Solution
Interest receivables:
Interest receivables, are non-trade receivables as these are not resulted from sales transaction or business operations.
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 lender or creditor. Notes receivable is an asset of a business.
For Adjustment of interest receivable on December 31, 2018:
- Interest receivable is an asset and it increases. Hence debit the interest receivable
- Interest revenue is a component of stock holders’ equity and increased it. Hence credit the interest revenue.
Working notes:
For receiving of annual interest on December 1, 2019:
- Cash is an asset and it increases. Hence debit the cash account.
- Interest receivable is an asset and it decreases. Hence credit the interest receivable account.
- Interest revenue is a component of
stockholders’ equity and it increases. Hence credit the interest revenue account.
Working notes:
For adjustment of interest receivable on December 31, 2019:
- Interest receivable is an asset and it increases. Hence debit the interest receivable
- Interest revenue is a component of stock holders’ equity and increased it. Hence credit the interest revenue.
Working notes:
For receiving of annual interest on December 1, 2020:
- Cash is an asset and it increases. Hence debit the cash account.
- Interest receivable is an asset and it decreases. Hence credit the interest receivable account.
- Interest revenue is a component of stockholders’ equity and it increases. Hence credit the interest revenue account.
Working notes:
For adjustment of interest receivable on December 31, 2020:
- Interest receivable is an asset and it increases. Hence debit the interest receivable
- Interest revenue is a component of stock holders’ equity and increased it. Hence credit the interest revenue.
Working notes:
3.
To record: Cash collection on December 1, 2021:
3.
Answer to Problem 5.8AP
Journal entry for cash collection on December 1, 2021:
Date | Account Title and Explanation | Debit ($) | Credit ($) | |
December 1, 2021 | Cash | 99,000 | ||
Notes receivable | 90,000 | |||
2020 | Interest receivable (1) | 750 | ||
Interest revenue (2) | 8,250 | |||
(To record cash collection of the note and interest) |
Table (7)
Explanation of Solution
For receiving of annual interest on December 1, 2021:
- Cash is an asset and it increases. Hence debit the cash account.
- Notes receivable is an asset and it decreases. Hence credit the notes receivable account.
- Interest receivable is an asset and it decreases. Hence credit the interest receivable account.
- Interest revenue is a component of stockholders’ equity and it increases. Hence credit the interest revenue account.
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Chapter 5 Solutions
Financial Accounting - Access
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