Concept explainers
Explanation of Solution
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.
Journalize the entries to record the transactions.
Date | Account Title and Explanation | Debit ($) | Credit ($) |
January 3 | Notes receivable | 18,000 | |
Cash | 18,000 | ||
(To record the loaned amount on note) | |||
February 10 | Accounts receivable – Company B | 24,000 | |
Sales | 24,000 | ||
(To record the sales made on account) | |||
February 10 | Cost of merchandise sold | 14,400 | |
Merchandise inventory | 14,400 | ||
(To record the cost of merchandise sold) | |||
February 13 | Accounts receivable – Company DC | 60,000 | |
Sales | 60,000 | ||
(To record the sales made on account) | |||
February 13 | Cost of merchandise sold | 54,000 | |
Merchandise inventory | 54,000 | ||
(To record the cost of merchandise sold) | |||
March 12 | Notes receivable | 24,000 | |
Accounts receivable – Company B | 24,000 | ||
(To record the receipt of note on account) | |||
March 14 | Notes receivable | 60,000 | |
Accounts receivable – Company DC | 60,000 | ||
(To record the receipt of note on account) | |||
April 3 | Notes receivable | 18,000 | |
Cash | 360 | ||
Notes receivable | 18,000 | ||
Interest revenue(1) | 360 | ||
(To record the amount of interest received and renewal of the loan of January 3 ) | |||
May 11 | Cash | $24,280 | |
Notes receivable | $24,000 | ||
Interest revenue (2) | $280 | ||
(To record the collection of cash on note of march 12) | |||
May 13 | Accounts receivable – Company D | $60,900 | |
Notes receivable | $60,000 | ||
Interest revenue (3) | $900 | ||
(To record dishonored note dated March 14) | |||
July 12 | Cash | $62,118 | |
Accounts receivable – Company DC | $60,900 | ||
Interest revenue (4) | $1,218 | ||
(To record collection of cash from the dishonored note from Company DC) | |||
August 1 | Cash | $18,540 | |
Notes receivable | $18,000 | ||
Interest revenue (5) | $540 | ||
(To record collection of cash on note of August 3) | |||
October 5 | Accounts receivable – Company H | $13,500 | |
Sales | $13,500 | ||
(To record the sales made on account) | |||
October 5 | Cost of merchandise sold | $8,100 | |
Merchandise inventory | $8,100 | ||
(To record the cost of merchandise sold) | |||
October 15 | Cash | $13,500 | |
Accounts receivable – Company H | $13,500 | ||
(To record the collection of cash on account) |
Table (1)
Working note (1):
For April 3:
Calculate the amount of interest revenue.
Working note (2):
For May 11:
Calculate the amount of interest revenue.
Working note (3):
For May 13:
Calculate the amount of interest revenue.
Working note (4):
For July 12:
Calculate the amount of interest revenue.
Working note (5):
For August 1:
Calculate the amount of interest revenue.
For the note received on granting loan, note receivable has to be created and accounts cash has to be decreased. Hence,
- • An increase in notes receivable (asset account) is debited, and
- • A decrease in cash (asset account) is credited.
For the sales made on account, accounts receivable has to be increased and sales have to be increased. Hence,
- • An increase in accounts receivable (asset account) is debited, and
- • An increase in sales (
stockholders’ equity account) is credited.
For recording the cost of goods sold, merchandise inventory has to be decreased, and cost of goods sold has to be recognized. Hence,
- • An increase in cost of goods sold (expense account) is debited, and
- • An increase in merchandise inventory (asset account) is credited.
For the note received on account, note receivable has to be created and accounts receivable has to be eliminated. Hence,
- • An increase in notes receivable (asset account) is debited, and
- • A decrease in accounts receivable (asset account) is credited.
For the cash collected on note along with interest, cash has to be increased, note receivable has to be eliminated, and interest revenue has to be recognized. Hence,
- • An increase in cash (asset account) is debited,
- • A decrease in notes receivable (asset account) is credited, and
- • An increase in interest revenue (stockholders’ equity account) is credited.
For the note dishonored at maturity date, accounts receivable has to be created, note receivable has to be eliminated, and interest revenue has to be recognized. Hence,
- • An increase in accounts receivable (asset account) is debited,
- • A decrease in notes receivable (asset account) is credited, and
- • An increase in interest revenue (stockholders’ equity account) is credited.
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Chapter 9 Solutions
Financial Accounting
- On December 1 of the current year, Jordan Inc. assigns 125,000 of its accounts receivable to McLaughlin Company for cash. McLaughlin Company charges a 750 service fee, advances 85% of Jordans accounts receivable, and charges an annual interest rate of 9% on any outstanding loan balance. Prepare the related journal entries for Jordan. Refer to RE6-10. On December 31, Jordan Inc. received 50,000 on assigned accounts. Prepare Jordans journal entries to record the cash receipt and the payment to McLaughlin.arrow_forwardOn December 1 of the current year, Jordan Inc. assigns 125,000 of its accounts receivable to McLaughlin Company for cash. McLaughlin Company charges a 750 service fee, advances 85% of Jordans accounts receivable, and charges an annual interest rate of 9% on any outstanding loan balance. Prepare the related journal entries for Jordan.arrow_forwardReview the following transactions and prepare any necessary journal entries for Lands Inc. A. On December 10, Lands Inc. contracts with a supplier to purchase 450 plants for its merchandise inventory, on credit, for $12.50 each. Credit terms are 4/15, n/30 from the invoice date of December 10. B. On December 28, Lands pays the amount due in cash to the supplier.arrow_forward
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