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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Sales and notes receivable transactions

The following were selected from among the transactions completed during the current year by Danix Co., an appliance wholesale company:

Jan. 21. Sold merchandise on account to Black Tie Co., $28,000. The cost of merchandise sold was $16,800.
Mar. 18. Accepted a 60-day, 6% note for $28,000 from Black Tie Co. on account.
May 17. Received from Black Tie Co. the amount due on the note of March 18.
June 15. Sold merchandise on account to Pioneer Co. for $17,700. The cost of merchandise sold was $10,600.
21. Loaned $18,000 cash to JR Stutts, receiving a 30-day, 8% note.
25. Received from Pioneer Co. the amount due on the invoice of June 15.
July 21. Received the interest due from JR Stutts and a new 60-day, 9% note as a renewal of the loan of June 21. (Record both the debit and the credit to the notes receivable account.)
Sept. 19. Received from JR Stutts the amount due on her note of July 21.
22. Sold merchandise on account to Wycoff Co., $20,000. The cost of merchandise sold was $12,000.
Oct. 14. Accepted a 30-day, 6% note for $20,000 from Wycoff Co. on account.
Nov. 13. Wycoff Co. dishonored the note dated October 14.
Dec. 28. Received from Wycoff Co. the amount owed on the dishonored note, plus interest for 45 days at 8% computed on the maturity value of the note.

Instructions

Journalize the entries to record the transactions.

To determine

Note receivable:

Note receivable refers to a written promise received by the creditor from the debtor in formal, for the amounts to be settled 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. Notes receivable often used for the credit periods of more than 60 days.

Accounts receivable:

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.

Interest on note:

Interest on note is the amount charged on the principal value of note for the privilege of borrowing money. Interest is to be paid by the borrower and to be received by the lender.

To journalize: The entries to record the transactions.

Explanation

Journalize the entries to record the transactions.

Date Account Title and Explanation Debit ($) Credit ($)
January 21 Accounts receivable – Company B 28,000  
      Sales   28,000
  (To record the sales made on account)    
 
January 21 Cost of merchandise sold 16,800  
      Merchandise inventory   16,800
  (To record the cost of merchandise sold)    
 
March 18 Notes receivable 28,000  
      Accounts receivable – Company B   28,000
  (To record the receipt of note on account)    
 
May 17 Cash $28,280  
      Notes receivable   $28,000
      Interest revenue (1)   $280
  (To record the collection of cash on note of march 18)    
 
June 15 Accounts receivable – Company P 17,700  
      Sales   17,700
  (To record the sales made on account)    
       
June 15 Cost of merchandise sold 10,600  
      Merchandise inventory   10,600
  (To record the cost of merchandise sold)    
 
June 21 Notes receivable 18,000  
      Cash   18,000
  (To record the loaned amount on note)    
 
June 25 Cash 17,700  
      Accounts receivable – Company P   17,700
  (To record the collection of cash on account)    
 
July 21 Notes receivable 18,000  
  Cash 120  
      Notes receivable   18,000
      Interest revenue (2)   120
  (To record the amount of interest received and renewal of the loan of June 21 )    
 
September 19 Cash 18,270  
    Notes receivable   18,000
      Interest revenue (3)   270
  (To record the collection of cash on note of July 21)    
 
September 22 Accounts receivable – Company W 20,000  
    Sales   20,000
  (To record the sales made on account)    
 
September 22 Cost of merchandise sold 12,000  
    Merchandise inventory   12,000
  (To record the cost of merchandise sold)    
 
October 14 Notes receivable 20,000  
      Accounts receivable – Company W   20,000
  (To record the receipt of note on account)    
 
November 13 Accounts receivable – Company W $20,100  
      Notes receivable   $20,000
      Interest revenue (4)   $100
  (To record dishonored note dated October 14)    
 
December 28 Cash $20,301  
      Accounts receivable – Company W   $20,100
      Interest revenue (5)   $201
  (To record collection of cash from the dishonored note from Company W)    

Working note:

For May 17:

Calculate the amount of interest revenue.

Interestrevenue=[Face amount ×Annual interest rate×Time in terms of year]=[$28,000×6%100×60 days360 days]=$280 (1)

For July 21:

Calculate the amount of interest revenue

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