(1)
Accounts receivable refers to the amounts to be received within a short period from customers upon the sale of goods and services on account. In other words, accounts receivable are amounts customers owe to the business. Accounts receivable is an asset of a business.
To prepare: The
(1)
Explanation of Solution
- For Sales on February 28, 2018:
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
February 28, 2018 | Notes Receivable | 10,000 | ||
Sales Revenue | 10,000 | |||
(To record the sales on account) |
Table (1)
- For Sales and receipt of noninterest bearing note on March 31, 2018:
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
March 31, 2018 | Notes Receivable | 8,000 | ||
Sales Revenue (2) | 7,200 | |||
Discount (1) | 800 | |||
(To record the sales on account) |
Table (2)
Working Note:
Compute the amount of discount:
Compute the amount of Sales revenue:
- For Sales on April 3, 2018:
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
April 3, 2018 | Accounts Receivable | 7,000 | ||
Sales Revenue | 7,000 | |||
(To record the sales on account) |
Table (3)
- For Cash collection from sales above on April 11:
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
April 11, 2018 | Cash (4) | 6,860 | ||
Sales Discount (3) | 140 | |||
Accounts Receivable | 7,000 | |||
(To record the sales remittance) |
Table (4)
Working Note:
Compute the amount of discount:
The sale was made on April 3 and the payment is received on April 11. Hence, the customer is eligible for a sales discount of 2% (2/10 term).
Compute the amount of cash received from the customer:
- For Sales Returns on April – 17:
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
April 17, 2018 | Sales Returns | 5,000 | ||
Accounts Receivable | 5,000 | |||
(To record the Sales Return at invoice price) |
Table (5)
- For Cost of Goods Sold – Sales Returns:
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
Merchandised Inventory | 3,200 | |||
Cost of Goods Sold | 3,200 | |||
(To record the cost of goods sold) |
Table (6)
- April 30, 2018 – Discounting of Notes Receivable:
Date | Account Title and Explanation | Post Ref. |
Debit ($) | Credit ($) |
April 30, 2018 | Cash (6) | 49,500 | ||
Loss on Sale of Note Receivable (5) | 500 | |||
Notes Receivable | 50,000 | |||
(To record the discounting of note receivable) |
Table (7)
- June 30 - Accrual of Interest:
Date | Accounts title and explanation | Post Ref. | Debit ($) |
Credit ($) |
June 30, 2018 | Interest Receivable | 333 | ||
Interest revenue (7) | 333 | |||
(To record accrued interest) |
Table (8)
Working note:
Compute the amount of loss on sale of accounts receivable:
Compute the amount of cash to be received from sale of accounts receivable:
Compute the amount of interest accrued:
Principal = $10,000
Rate of interest = 10%
Period = 4 Months (February 28 to June 30)
- For Discounting of Notes Receivable on June 30:
Date | Account Title and Explanation | Post Ref. |
Debit ($) | Credit ($) |
June 30, 2018 | Cash (11) | 10,266 | ||
Loss on Sale of Note Receivable (Table 12) | 67 | |||
Notes Receivable | 10,000 | |||
Interest Receivable | 333 | |||
(To record the discounting of note receivable) |
Table (9)
Working note:
Compute the amount of interest on maturity:
Principal = $10,000
Rate of interest = 10%
Period = 7 Months
Compute the maturity value:
Compute the amount discount on discounting the note:
Compute the amount of cash proceeds:
Compute the loss on sale of notes receivable:
Face value of Notes Receivable | $10,000 |
Add: Interest Receivable | 333 |
Less: Cash Proceeds | (10,266) |
Loss on Sale of Investments | $67 |
Table (10)
For September 30 – No Entry is required.
(2)
To prepare: Year-end
(2)
Explanation of Solution
Date | Account Title and Explanation | Post Ref. |
Debit ($) | Credit ($) |
December 31, 2018 | Discount | 600 | ||
Interest Revenue (12) | 600 | |||
(To record the discounting of note receivable) |
Table (11)
Compute the amount of interest:
Principal = $8,000
Rate of interest = 10%
Period = 9 Months (March 31 to December 31)
(3)
To prepare: The effect of all of the above transactions on the net income of 2018
(3)
Explanation of Solution
The effect of all of the above transactions on the net income of 2018 is prepared as follows:
Date | Income Increase (Decrease) | Reasons |
February 28 | $10,000 | Sales Revenue Increases the Net Income |
March 31 | 7,200 | Sales Revenue Increases the Net Income |
April 3 | 7,000 | Sales Revenue Increases the Net Income |
April 11 | (140) | Sales Discount Decreases the Net Income |
April 17 | (5,000) | Sales Returns Decreases the Net Income |
April 17 | 3,200 | Cost of Goods Sold Increases the Net Income |
April 30 | (500) | Loss on Sale of Accounts Receivable Decreases the Net Income |
June 30 | 333 | Interest Revenue Increases the Net Income |
June 30 | (67) | Loss on Sale of Accounts Receivable Decreases the Net Income |
December 31 | 600 | Interest Revenue Increases the Net Income |
Total | $22,626 |
Table (12)
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Chapter 7 Solutions
INTERMEDIATE ACCT.(LL)W/CONNECT ACCESS
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