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Q32PGA

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Horngren'S Financial And Managerial Accounting
Found in: Page 477

Short Answer

Accounting for notes receivable and accruing interestCarley Realty loaned money and received the following notes during 2018.Note Date Principal Amount Interest Rate Term

(1) Apr. 1 $ 6,000 7% 1 year

(2) Sep. 30 12,000 6% 6 months

(3) Sep. 19 18,000 8% 90 days

Requirements

1. Determine the maturity date and maturity value of each note.

2. Journalize the entries to establish each Note Receivable and to record the collection ofprincipal and interest at maturity. Include a single adjusting entry on December 31, 2018, the fiscal year-end, to record accrued interest revenue on any applicable note.Explanations are not required. Round to the nearest dollar.

(1) Maturity date and maturity value

Note 1- 31 March 2019 and $6,420

Note 2- 31 March 2019 and $12,360

Note 3- 18 December 2018 and $18,355

(2) Journal entries are recorded in Step 3

See the step by step solution

Step by Step Solution

Step 1: Definition of the maturity date

The maturity date of the note is the date at which the notes become due. On the maturity date, the amount of the notes receivable is received by the company.

Step 2: Maturity date and maturity value

Note

Date

Principal

Time

Maturity date

Year

Value

1

April 1

$6,000

One year

31 March

2019

$6,420

2

September 30

$12,000

Six months

31 March

2019

$12,360

3

September 19

$18,000

90 days

18 December

2018

$18,355

Note 1-

Note 2-

Note 3-

Step 3: Journal entries

Date

Particulars

Debit

Credit

April 1, 2018

Notes Receivable

$6,000

Cash

$6,000

(To entry for notes receivable)

September 30, 2018

Notes Receivable

$12,000

Cash

$12,000

(To entry for notes receivable)

September 19, 2018

Notes Receivable

$18,000

Cash

$18,000

(To entry for notes receivable)

December 18, 2018

Cash

$18,360

Notes Receivable

$18,000

Interest receivable

$360

(To notes receivable-3 is collected on maturity)

December 31, 2018

Interest Receivable

$315

Interest revenue

$315

(To interest accrues on note 1)

December 31, 2018

Interest Receivable

$180

Interest Revenue

$180

(To interest revenue accrue on note 2)

Most popular questions for Business-studies Textbooks

This problem continues the Crystal Clear Cleaning problem begun in Chapter 2 and

continued through Chapter 7.

Crystal Clear Cleaning uses the allowance method to estimate bad debts. Consider the following April 2019 transactions for Crystal Clear Cleaning:

Apr. 1 Performed cleaning service for Debbie’s D-list for $13,000 on account with

terms n/20.

10 Borrowed money from First Regional Bank, $30,000, making a 180-day, 12% note.

12 After discussions with customer More Shine, Crystal Clear has determined that

$230 of the receivable owed will not be collected. Wrote off this portion of the

receivable.

15 Sold goods to Warner for $9,000 on account with terms n/30. Cost of Goods Sold

was $4,500.

28 Sold goods to Lelaine, Inc. for cash of $2,800 (cost $840).

28 Collected from More Shine, $230 of receivable previously written off.

29 Paid cash for utilities of $150.

30 Created an aging schedule for Crystal Clear Cleaning for accounts receivable.

Crystal Clear determined that $7,000 of receivables outstanding for 1–30 days

were 3% uncollectible, $10,000 of receivables outstanding for 31–60 days were

20% uncollectible, and $5,870 of receivables outstanding for more than 60 days

were 30% uncollectible. Crystal Clear Cleaning determined the total amount of

estimated uncollectible receivables and adjusted the Allowance for Bad Debts.

Assume the account had an unadjusted credit balance of $260. (Round to

nearest whole dollar.)

Requirements

1. Prepare all required journal entries for Crystal Clear. Omit explanations.

2. Show how net accounts receivable would be reported on the balance sheet as of

April 30, 2019.

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