Connect 2-Semester Access Card for Fundamental Accounting Principles
Connect 2-Semester Access Card for Fundamental Accounting Principles
22nd Edition
ISBN: 9780077632755
Author: John Wild
Publisher: McGraw-Hill Education
Question
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Chapter 9, Problem 1GLP
To determine

Journal entries:

Journal entry is a practice of recording of all the financial events in a sequential order. As per this method each transaction has two sides which are debit side and credit side. Total value of debit side must be equal to the total value of credit side. It acts as a base of all the financial transactions.

1.

To prepare: Journal entry.

Expert Solution
Check Mark

Explanation of Solution

Date Account Title and Explanation Post ref Debit
($)
Credit
($)
Dec 16 Notes receivable – Danny Todd   10,800  
  Accounts receivable – Danny Todd     10,800
  (To record conversion of accounts receivable into notes receivable.)      

Table (1)

• Notes receivable are classified under current assets in balance sheet and debited with the conversion of accounts receivable account into notes receivable, this account will be debited.

• Accounts receivable account is classified under current assets in balance sheet and credited with the conversion of accounts receivable account into notes receivable.

Date Account Title and Explanation Post ref Debit
($)
Credit
($)
Dec 31 Accrued interest ($10,800×8%×15365)   36  
  Interest revenue     36
  (To record accrued interest.)      

Table (2)

• Accrued interest is classified under current assets in balance sheet and debited with the increase in accrued interest account.

• Interest revenue is classified under revenue in income statement account. This account will be credited with the increase in interest revenue.

Date Account Title and Explanation Post ref Debit
($)
Credit
($)
Feb 14 Cash   10943  
  Interest revenue     107
  Interest receivable     36
  Notes receivable- D. Todd     10800
  (To record payment of principal and interest from Todd.)      

Table (3)

• Cash is classified under current assets in balance sheet. With the receipt of cash, cash account will be increased and therefore will be debited.

• Interest revenue is classified under revenue in income statement account. This account will be credited with the increase in interest revenue.

• Interest receivable account is classified under current assets in balance sheet and credited with the transfer of amount to cash account as interest is received in cash.

• Notes receivable is classified under current assets account and it will be credited with the transfer of balance from notes receivable account to cash account.

Date Account Title and Explanation Post ref Debit
($)
Credit
($)
Mar 02 Notes receivable – Midnight Co.   6,100  
  Accounts receivable – Midnight Co.     6,100
  (To record conversion of accounts receivable into notes receivable.)      

Table (4)

• Notes receivable are classified under current assets in balance sheet and debited with the conversion of accounts receivable account into notes receivable, this account will be debited.

• Accounts receivable account is classified under current assets in balance sheet and credited with the conversion of accounts receivable account into notes receivable.

Date Account Title and Explanation Post ref Debit
($)
Credit
($)
Mar 17 Notes receivable – Ava Privet   2,400  
  Accounts receivable – Ava Privet     2,400
  (To record conversion of accounts receivable into notes receivable.)      

Table (5)

• Notes receivable are classified under current assets in balance sheet and debited with the conversion of accounts receivable account into notes receivable, this account will be debited.

• Accounts receivable account is classified under current assets in balance sheet and credited with the conversion of accounts receivable account into notes receivable.

Date Account Title and Explanation Post ref Debit
($)
Credit
($)
April 16 Accounts receivable – Ava Privet   2,414  
  Interest revenue     14
  Notes receivable- Ava Privet     2,400
  (To record Note dishonored by Privet.)      

Table (6)

• Accounts receivable is classified under current asset account and this account will be debited with the increase in balance of accounts receivable.

• Interest revenue is classified under revenue in income statement account. This account will be credited with the increase in interest revenue.

• Notes receivable is classified under current assets account and it will be credited with the transfer of balance from notes receivable account to cash account.

Date Account Title and Explanation Post ref Debit
($)
Credit
($)
May 31 Accounts receivable – Midnight Co.   6,220  
  Interest revenue     120
  Notes receivable- Midnight Co.     6,100
  (To record dishonored note plus interest charged to Midnight Co’s accounts receivable..)      

Table (7)

• Accounts receivable is classified under current asset account and this account will be debited with the increase in balance of accounts receivable.

• Interest revenue is classified under revenue in income statement account. This account will be credited with the increase in interest revenue.

• Notes receivable is classified under current assets account and it will be credited with the transfer of balance from notes receivable account to cash account.

Date Account Title and Explanation Post ref Debit
($)
Credit
($)
Jul 16 Cash   6,282  
  Interest revenue     62
  Accounts receivable – Midnight Co.     6,220
  (To record payment received from Midnight Co.)      

Table (8)

• Cash is classified under current assets in balance sheet. With the receipt of cash, cash account will be increased and therefore will be debited.

• Interest revenue is classified under revenue in income statement account. This account will be credited with the increase in interest revenue.

• Accounts receivable account is classified under current assets in balance sheet and credited with the conversion of accounts receivable account into notes receivable.

Date Account Title and Explanation Post ref Debit
($)
Credit
($)
Aug 7 Notes receivable – Mulan Co.   7,450  
  Accounts receivable – Mulan Co.     7,450
  (To record conversion of accounts receivable into notes receivable.)      

Table (9)

• Notes receivable are classified under current assets in balance sheet and debited with the conversion of accounts receivable account into notes receivable, this account will be debited.

• Accounts receivable account is classified under current assets in balance sheet and credited with the conversion of accounts receivable account into notes receivable.

Date Account Title and Explanation Post ref Debit
($)
Credit
($)
Sep 3 Notes receivable – Noah Carson   2,100  
  Accounts receivable – Noah Carson.     2,100
  (To record conversion of accounts receivable into notes receivable.)      

Table (10)

• Notes receivable are classified under current assets in balance sheet and debited with the conversion of accounts receivable account into notes receivable, this account will be debited.

• Accounts receivable account is classified under current assets in balance sheet and credited with the conversion of accounts receivable account into notes receivable.

Date Account Title and Explanation Post ref Debit
($)
Credit
($)
Nov 2 Accounts receivable – Noah Carson   2,135  
  Interest revenue     35
  Notes receivable- Noah Carson.     2,100
  (To record payment received from Noah Carson.)      

Table (11)

• Accounts receivable is classified under current asset account and this account will be debited with the increase in balance of accounts receivable.

• Interest revenue is classified under revenue in income statement account. This account will be credited with the increase in interest revenue.

• Notes receivable is classified under current assets account and it will be credited with the transfer of balance from notes receivable account to cash account.

Date Account Title and Explanation Post ref Debit
($)
Credit
($)
Nov 5 Cash   7,634  
  Interest revenue     184
  Notes receivable - Mulan.     7,450
  (To record payment received from Mulan.)      

Table (12)

• Cash is classified under current assets in balance sheet. With the receipt of cash, cash account will be increased and therefore will be debited.

• Interest revenue is classified under revenue in income statement account. This account will be credited with the increase in interest revenue.

• Notes receivable is classified under current assets account and it will be credited with the transfer of balance from notes receivable account to cash account.

Date Account Title and Explanation Post ref Debit
($)
Credit
($)
Dec 1 Allowances for doubtful accounts   2,414  
  Accounts receivable – A Privet     2,414
  (To record Privet account written off against allowance for doubtful accounts.)      

Table (13)

• Allowance for doubtful accounts is a contra asset account which represents the amount not likely to be recovered. Writing off the privet account will reduce the balance of allowance for doubtful accounts and therefore, this account will be debited.

• Accounts receivable account is classified under current assets in balance sheet and credited with the conversion of accounts receivable account into notes receivable.

2.

To determine

To identify: Reporting required when business pledges its receivables for a loan and the loan is still outstanding at the end of the period.

Expert Solution
Check Mark

Explanation of Solution

• In the given case, the company is liable to disclose the fact that it has pledged its receivables for a loan which is still outstanding at the end of the period.

• As per Full Disclosure Principle of the accounting, a company is required to disclose all such information which has a significant impact on the financial statement.

• This information is necessary to protect the interest of the stake holders and to give true and fair view of the financial statement.

Hence, the company is required to disclose its information under full disclosure principle of the accounting.

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