Explanation Nov 1 accepted a $6,000, 180 day, 8% note dated November 1 from K.W in granting a time extension on her past due account receivable. Date Account Title and Explanation Post ref Debit ($) Credit ($) Nov 1 Note Receivable (K.W) 6,000 Accounts Receivable (K.W) 6,000 (Being receipt of note receivable by an account receivable is recorded ) Since receipt of note receivable would increase the amount of note receivable account and note receivable is an asset account, it is debited when it is increased. Since receipt of note receivable by an account receivable would decrease the amount of accounts receivable and account receivable is an asset account, it is credited when it is decreased. Dec 31 adjusted the year end accounts for the accrued interest earned on the note. Date Account Title and Explanation Post ref Debit ($) Credit ($) Dec 31 Interest Receivable 80 Interest Revenue 80 (Being interest of one month on note receivable is recorded ) Since interest on notes receivable for one month will increase the value of interest receivable and interest receivable is an asset account, it is debited when it is increased. Since interest for notes receivable will increase the amount of revenue and interest received is a revenue account, it is credited when it is increased. Working Note: Calculate interest on note receivable with the formula as follows: Interest = [ Principle amount of notes × Annual rate of interest × Number of months 12 ] Substitute $6,000 for principle amount of notes, 8% for annual rate of interest and 2 as number of months in the above formula, Interest = [ $ 6 , 000 × 8 % × 2 12 ] = $ 80 Apr 30 K

Loose-Leaf for Financial and Managerial Accounting

7th Edition

ISBN: 9781260004861

Author: John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles

Publisher: McGraw-Hill Education

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Question

Chapter 7, Problem 13E

To determine

Note Receivable:

It refers to the amount that is to be received by a company from a third party on a promise to pay at any specified future date.

Journal Entry:

It means record of financial data related to business transactions in a journal in a manner so that debit equals credit. It provides an audit trail to the auditor and a means to analyze the effects of transactions to an organization’s financial health.

Rules of Journal Entry:

The rules for journal entry are defined by 5 accounting components,

Assets: Increase in asset should be debit and decrease should be credit.

Liabilities: Increase in liabilities should be credit and decrease should be debit.

Equity: Increase in Equity should be credit and decrease should be debit.

Expense: Increase in expense should be debit and decrease should be credit.

Revenue: Increase in revenue should be credit and decrease should be debit.

To prepare: Adjustment entry to record the given transactions for note receivables.

Expert Solution & Answer

Chapter 7 Solutions

Loose-Leaf for Financial and Managerial Accounting

Ch. 7 - Prob. 1MCQ Ch. 7 - Prob. 2MCQ Ch. 7 - Prob. 3MCQ Ch. 7 - Prob. 4MCQ Ch. 7 - Prob. 5MCQ Ch. 7 - Prob. 1DQ Ch. 7 - Prob. 2DQ Ch. 7 - Prob. 3DQ Ch. 7 - Prob. 4DQ Ch. 7 - Prob. 5DQ

Ch. 7 - Prob. 6DQ Ch. 7 - Prob. 7DQ Ch. 7 - Prob. 8DQ Ch. 7 - Prob. 9DQ Ch. 7 - Prob. 10DQ Ch. 7 - Prob. 1QS Ch. 7 - Prob. 2QS Ch. 7 - Prob. 3QS Ch. 7 - QS 7-4 Distinguishing between allowance method and...Ch. 7 - QS 7-5 Allowance method for bad debts P2 Gomez...Ch. 7 - Percent of accounts receivable method P3 Warner...Ch. 7 - Prob. 7QS Ch. 7 - Prob. 8QS Ch. 7 - Prob. 9QS Ch. 7 - Prob. 10QS Ch. 7 - Prob. 11QS Ch. 7 - Prob. 12QS Ch. 7 - Prob. 13QS Ch. 7 - Prob. 1E Ch. 7 - Prob. 2E Ch. 7 - Prob. 3E Ch. 7 - Prob. 4E Ch. 7 - Prob. 5E Ch. 7 - Prob. 6E Ch. 7 - Prob. 7E Ch. 7 - Exercise 7-8 Percent of receivables method P3...Ch. 7 - Prob. 9E Ch. 7 - Prob. 10E Ch. 7 - Prob. 11E Ch. 7 - Prob. 12E Ch. 7 - Prob. 13E Ch. 7 - Exercise 7-14 Dishonoring a note P4 Prepare...Ch. 7 - Prob. 15E Ch. 7 - Prob. 16E Ch. 7 - Prob. 17E Ch. 7 - Prob. 1PSA Ch. 7 - Prob. 2PSA Ch. 7 - Prob. 3PSA Ch. 7 - Prob. 4PSA Ch. 7 - Prob. 5PSA Ch. 7 - Prob. 1PSB Ch. 7 - Prob. 2PSB Ch. 7 - Prob. 3PSB Ch. 7 - Prob. 4PSB Ch. 7 - Prob. 5PSB Ch. 7 - Prob. 7SP Ch. 7 - Prob. 1GLP Ch. 7 - Prob. 1BTN Ch. 7 - Prob. 2BTN Ch. 7 - Anton Blair is the manager of a medium-size...Ch. 7 - Prob. 4BTN Ch. 7 - Prob. 5BTN Ch. 7 - Prob. 6BTN Ch. 7 - Prob. 7BTN Ch. 7 - Prob. 8BTN Ch. 7 - Prob. 9BTN

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7.2 Ch 7: Notes Payable and Interest, Revenue recognition explained; Author: Accounting Prof - making it easy, The finance storyteller;https://www.youtube.com/watch?v=wMC3wCdPnRg;License: Standard YouTube License, CC-BY