Recording the Sale of Notes Receivable Singer Corporation was involved in the following events in the current year:

Required:

Prepare the journal entries to record the preceding information on Singer’s accounting records. Assume that the company does not normally sell its notes. (Assume a 360-day year and round all answers to the nearest penny.)

Provide journal entries to record the previous information on Corporation S’ accounts.

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 the lender or creditor. Notes receivable is an asset of a business.

Prepare journal entries:

Table (1)

To record the receipt of the interest bearing note:

• Notes receivable is an asset and it is increased. Therefore, debit notes receivable account by $5,000.
• Sales revenue is a component of stockholders’ equity and it is increased. Therefore, credit sales revenue account by $5,000.

To record the notes receivable:

• Notes receivable is an asset and it is increased. Therefore, debit notes receivable account by $6,000.
• Accounts receivable is an asset and it is decreased. Therefore, credit accounts receivable account by $6,000.

To record the note discounted on July 30:

• Cash is an asset and it is increased. Therefore, debit cash account by $11,043.25
• Loss from sale of receivable is a component of stockholders’ equity and it is decreased. Therefore, debit loss from sale of receivables by $1,527.58
• Recourse liability is a liability and it is increased. Therefore, credit recourse liability by $1,500.
• Notes receivable is an asset and it is increased. Therefore, credit notes receivable account by $11,000.
• Interest income is a component of stockholders’ equity and it is increased. Therefore, credit interest income account by $70.83.

To record the notes dishonored:

• Recourse liability is a liability and it is decreased. Therefore, debit recourse liability account by $1,500.
• Notes dishonored are a component of stockholders’ equity and it is decreased. Therefore, debit notes dishonored account by $3,647.50.
• Cash is an asset and it is decreased. Therefore, credit cash account by $5,147.50.

Working note:

(1) Calculate the loss from sale of receivables:

Table (2)

(2) Calculate the interest to maturity of note for Company B:

Interest to maturity = (Note receivable × Percentage of interest×Time period)=$5,000×11%×90 days360days=$137.50

(3) Calculate the discount amount for company B:

Discount = (Maturity value of note × percentage of recourse liability× Time period)=$5,137