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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Recording Notes Receivable: Issuance, Payment, and Default

Marydale Products permits its customers to defer payment by giving personal notes instead of cash. All the notes bear interest and require the customer to pay the entire note in a single payment 6 months after issuance. Consider the following transactions, which describe Marydale’s experience with two such notes:

a. On October 31, 2019, Marydale accepts a 6-month, 9% note from Customer A in lieu of a $3,600 cash payment for services provided that day.

b. On February 28, 2020, Marydale accepts a 6-month, $2,400, 7% note from Customer B in lieu of a $2,400 cash payment for services provided on that day.

c. On April 30, 2020, Customer A pays the entire note plus interest in cash.

d. On August 31, 2020, Customer B pays the entire note plus interest in cash.

Required:

Prepare the necessary journal and adjusting entries required to record Transactions a through d in Marydale’s records.

To determine

Notes Receivables:

The note receivables are a type of promissory note which is made for the payment of a specified amount at an extended date. These notes can be interest charging or cannot be charging the interest.

To calculate:

The journal entries and adjusting entries for recording sales through note receivables.

Explanation

The Marydale Products is entered in two transactions against 6 months note receivable of amount $3,600 and $2,400 having rate 9% and 7% respectively. This is given in the question.

The journal entries for recording sales for the Marydale Products are as follows:

Date Particulars Debit ($) Credit ($)
Oct. 31,2019 9% Notes Receivables Sales revenue (Record the sales against the notes receivable) 3,600 3,600
Feb. 28,2020 7% Notes Receivables Sales revenue (Record the sales against the notes receivable) 2,400 2,400
Apr. 30,2020 Cash Interest Income 9% Notes Receivables (Record the cash receipt from note receivables) 3,762 162 3,600
Aug

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