INTERMEDIATE ACCOUNTING
INTERMEDIATE ACCOUNTING
8th Edition
ISBN: 9780078096488
Author: SPICELAND
Publisher: MCG
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Chapter 7, Problem 7.24E

(1)

To determine

Receivables:

Receivables refer to an amount to be received in future. General classifications of receivables are accounts receivable, note receivable, and other receivables.

To prepare: Journal entries for each transaction.

(1)

Expert Solution
Check Mark

Explanation of Solution

March 17: Write-off of account receivables:

Date Account Title and Explanation Post Ref

Debit

($)

Credit ($)
March 17, 2016 Allowance for uncollectible accounts   1,700  
  Accounts Receivable     1,700
  (To record the write-off of receivables)      

Table (1)

March 30: Receipt of Notes Receivable:

Date Account Title and Explanation Post Ref

Debit

($)

Credit ($)
March 30, 2016 Notes Receivable   20,000  
  Cash     20,000
  (To record receipt of notes receivable)      

Table (2)

May 30: Discounting of Notes Receivable:

  • Accrual of Interest:
Date Accounts title and explanation Post Ref.

Debit

($)

Credit

($)

May 30, 2016 Interest Receivable   233  
  Interest revenue (1)     233
  (To record accrued interest)      

Table (3)

  • To record the loss:
Date Account Title and Explanation

Post

Ref.

Debit ($) Credit ($)
May 30, 2016 Cash  (5)   19,973  
  Loss on Sale of Note Receivable (Refer table 5)   260  
  Notes Receivable     20,000
  Interest Receivable (1)     233
  (To record the discounting of note receivable)      

Table (4)

Working note:

Compute the amount of interest accrued:

Principal = $20,000

Rate of interest = 7%

Period = 2 Months (March 30 to May 30)

Interest=Principal×Rate of interest×Interest period=$20,000×7100×212=$233                             (1)

Compute the amount of interest on maturity:

Principal = $20,000

Rate of interest = 7%

Period = 12 Months (March 30, 2016 to March 30, 2015)

Interest=Principal×Rate of interest×Interest period=$20,000×7100=$1,400                            (2)

Compute the maturity value:

Maturity Value=Face value+Interest=$20,000+$1,400 (2)=$21,400                                                 (3)

Compute the amount discount on discounting the note:

Discount=(Maturity Value×Rate of interest×Remaining period)=$20,000×8100×10(122)12=$1,427                                       (4)

Compute the amount of cash proceeds:

Cash Proceeds=Maturity ValueDiscount=$21,400 (3)$1,427(4)=$19,973                                         (5)

Compute the loss on sale of notes receivable:

Face value of Notes Receivable $20,000
Add: Interest Receivable 233
Less: Cash Proceeds (19,973)
Loss on Sale of Investments $260

Table (4)

June 30:  Sales:

Date Account Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

June 30, 2016 Accounts Receivable   12,000  
  Sales Revenue     12,000
  (To record the sales on account)      

Table (5)

July 8: Collection from Customers:

Date Account Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

July 8, 2016 Cash (7)   11,760  
  Sales Discount (6)   240  
  Accounts Receivable     12,000
  (To record the sales remittance)      

Table (6)

Working note:

Compute the amount of discount:

The sale was made on June 30 and the payment is received on July 8.  Hence, the customer is eligible for a sales discount of 2% (2/10 term).

Sales Discount=AmountDue×Rate of Discount=$12,000×2% =$240 (6)

Compute the amount of cash received from the customer:

Cash Received=(Invoice PriceSales Discount)=($12,000$240)=$11,760 (7)

August 31: Sale of Stock:

Date Account Title and Explanation

Post

Ref.

Debit ($) Credit ($)
August 31, 2016 Notes Receivable   6,000  
  Discount on Note Receivable (8)     240
  Investments     5,000
  Gain on Sale of Investments     760
  (To record the exchange of notes receivable with stock)      

Table (7)

Working note:

Compute the discount on notes receivable:

Discount=Principal×Rate of interest×Interest period=$6,000×8100×6(February 28 to August 31)12=$240 (8)

Compute the gain on sale of investments:

Face value of Notes Receivable $6,000
Less: Book value of investment (5,000)
Less: Discount on Note receivable (240)
Loss on Sale of Investments $760

Table (8)

December 31, 2016: Bad Debts Expense:

Date Account Title and Explanation Post Ref

Debit

($)

Credit ($)
December 31, 2016 Bad Debts Expense (9)   14,000  
  Allowance for uncollectible accounts     14,000
  (To record the depreciation expense)      

Table (9)

Working note:

Compute the amount of bad debts expense:

Bad Debts Expense=2% of Credit Sales=$700,000×2%=$14,000 (9)

To determine

To prepare: necessary adjusting entry.

Expert Solution
Check Mark

Explanation of Solution

December 31, 2016: Adjusting Entry for Interest Accrual:

Date Accounts title and explanation Post Ref.

Debit

($)

Credit

($)

December 31, 2016 Discount on Note Receivable   160  
  Interest revenue (10)     160
  (To record accrued interest)      

Table (10)

Working note:

Compute the amount of interest:

Principal = $6,000

Rate of interest = 8%

Period = 4 Months (August 31 to December 31)

Interest=Principal×Rate of interest×Interest period =$6,000×8100×412=$160 (10)

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Chapter 7 Solutions

INTERMEDIATE ACCOUNTING

Ch. 7 - Prob. 7.11QCh. 7 - Is any special accounting treatment required for...Ch. 7 - Explain any possible differences between...Ch. 7 - Prob. 7.14QCh. 7 - What is meant by the discounting of a note...Ch. 7 - What are the key variables that influence a...Ch. 7 - Prob. 7.17QCh. 7 - Prob. 7.18QCh. 7 - (Based on Appendix 7B) Marshall Companies, Inc.,...Ch. 7 - Prob. 7.20QCh. 7 - Prob. 7.1BECh. 7 - Prob. 7.2BECh. 7 - Prob. 7.3BECh. 7 - Prob. 7.4BECh. 7 - Prob. 7.5BECh. 7 - Prob. 7.6BECh. 7 - Prob. 7.7BECh. 7 - Prob. 7.8BECh. 7 - Prob. 7.9BECh. 7 - Uncollectible accounts; balance sheet approach ...Ch. 7 - Uncollectible accounts; solving for unknown LO75,...Ch. 7 - Prob. 7.12BECh. 7 - Prob. 7.13BECh. 7 - BE 7–14 Long-term notes receivable LO7–4 On April...Ch. 7 - Prob. 7.15BECh. 7 - Factoring of accounts receivable LO78 Refer to...Ch. 7 - Prob. 7.17BECh. 7 - Discounting a note LO78 On March 31, Dower...Ch. 7 - Receivables turnover LO78 Camden Hardwares credit...Ch. 7 - Prob. 7.20BECh. 7 - Prob. 7.21BECh. 7 - Prob. 7.1ECh. 7 - Prob. 7.2ECh. 7 - Prob. 7.3ECh. 7 - Prob. 7.4ECh. 7 - Prob. 7.5ECh. 7 - Prob. 7.6ECh. 7 - Prob. 7.7ECh. 7 - Prob. 7.8ECh. 7 - Prob. 7.9ECh. 7 - E 7–10 Uncollectible accounts; allowance method...Ch. 7 - Prob. 7.11ECh. 7 - Prob. 7.12ECh. 7 - Prob. 7.13ECh. 7 - Prob. 7.14ECh. 7 - Prob. 7.15ECh. 7 - Prob. 7.16ECh. 7 - E 7–17 Interest-bearing note receivable, solving...Ch. 7 - E 7–18 Assigning of specific accounts...Ch. 7 - Prob. 7.19ECh. 7 - Factoring of accounts receivable with recourse ...Ch. 7 - Factoring of accounts receivable with recourse...Ch. 7 - E 7–22 Discounting a note receivable LO7–8 Selkirk...Ch. 7 - Concepts; terminology LO71 through LO78 Listed...Ch. 7 - Prob. 7.24ECh. 7 - Prob. 7.25ECh. 7 - Prob. 7.26ECh. 7 - Prob. 7.27ECh. 7 - Prob. 7.28ECh. 7 - Prob. 7.29ECh. 7 - E 7–30 Bank reconciliation and adjusting...Ch. 7 - Prob. 7.31ECh. 7 - Prob. 7.32ECh. 7 - Prob. 1CPACh. 7 - Prob. 2CPACh. 7 - Prob. 3CPACh. 7 - 4. The following information relates to Jay Co.’s...Ch. 7 - Prob. 5CPACh. 7 - Prob. 6CPACh. 7 - 7. West Company had (the following account...Ch. 7 - Prob. 8CPACh. 7 - Prob. 9CPACh. 7 - Prob. 10CPACh. 7 - Prob. 1CMACh. 7 - Prob. 2CMACh. 7 - Prob. 3CMACh. 7 - Prob. 7.1PCh. 7 - Uncollectible accounts; Amdahl LO75 Real World...Ch. 7 - Prob. 7.3PCh. 7 - Prob. 7.4PCh. 7 - Prob. 7.5PCh. 7 - Prob. 7.6PCh. 7 - Prob. 7.7PCh. 7 - Prob. 7.8PCh. 7 - Prob. 7.9PCh. 7 - Prob. 7.10PCh. 7 - Prob. 7.11PCh. 7 - Prob. 7.12PCh. 7 - Prob. 7.13PCh. 7 - Prob. 7.14PCh. 7 - Prob. 7.15PCh. 7 - Prob. 7.1BYPCh. 7 - Prob. 7.2BYPCh. 7 - Prob. 7.3BYPCh. 7 - Real World Case 74 Sales returns; Green Mountain...Ch. 7 - Ethics Case 75 Uncollectible accounts LO75 You...Ch. 7 - Prob. 7.6BYPCh. 7 - Prob. 7.7BYPCh. 7 - Integrating Case 7–8 Change in estimate of bad...Ch. 7 - Prob. 7.9BYPCh. 7 - Prob. 7.10BYPCh. 7 - Prob. 7.11BYPCh. 7 - Analysis Case 7–12 Compare receivables management...
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Accounts Receivable and Accounts Payable; Author: The Finance Storyteller;https://www.youtube.com/watch?v=x_aUWbQa878;License: Standard Youtube License