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Q8-31PGA

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

Short Answer

Sleepy Recliner Chairs completed the following selected transactions:

2018

Jul. 1 Sold merchandise inventory to Stan-Mart, receiving a $41,000, nine-month, 8%

note. Ignore Cost of Goods Sold.

Oct. 31 Recorded cash sales for the period of $24,000. Ignore Cost of Goods Sold.

Dec. 31 Made an adjusting entry to accrue interest on the Stan-Mart note.

31 Made an adjusting entry to record bad debts expense based on an aging

of accounts receivable. The aging schedule shows that $13,800 of accounts

receivable will not be collected. Prior to this adjustment, the credit balance in

Allowance for Bad Debts is $11,800.

2019

Apr. 1 Collected the maturity value of the Stan-Mart note.

Jun. 23 Sold merchandise inventory to Appeal, Corp., receiving a 60-day, 6% note for

$7,000. Ignore Cost of Goods Sold.

Aug. 22 Appeal, Corp. dishonoured its note at maturity; the business converted the

maturity value of the note to an account receivable.

Nov. 16 Loaned $17,000 cash to Crosby, Inc., receiving a 90-day, 16% note.

Dec. 5 Collected in full on account from Appeal, Corp.

31 Accrued the interest on the Crosby, Inc. note.

Record the transactions in the journal of Sleepy Recliner Chairs. Explanations are not

required. (Round to the nearest dollar.)

Answer:

Journal entries are recorded in Steps 2 and 3.

See the step by step solution

Step by Step Solution

Step 1: Definition of the bad debts allowance method

This is a method in which the company makes estimates of the number of bad debts before the amount becomes due.

Step 2: Journal entries for Year 2018

Date

Particulars

Debit

Credit

July 1, 2018

Notes Receivable- Stan-Mart

$41,000

Sales Revenue

$41,000

(Being entry to record sale)

October 31, 2018

Cash

$24,000

Sales Revenue

$24,000

(To record cash sales)

December 31, 2018

Interest Receivable ($41,000*8%*6/12)

$1,640

Interest Revenue

$1,640

(To record interest revenue)

December 31, 2018

Bad Debt Expense

$2,000

Allowance for Bad Debts

$2,000

(Entry to record bad debt expense)

Step 3: Journal entries for Year 2019

Date

Particulars

Debit

Credit

April 1, 2019

Cash

$43,460

Interest Revenue ($41,000*8%*3/12)

$820

Interest Receivable

$1,640

Notes Receivable- Stan Mart

$41,000

(To record the interest collected on maturity)

June 23, 2019

Notes Receivable- Appeal corp.

$7,000

Sales Revenue

$7,000

(To record the sale)

August 22, 2019

Accounts Receivable- Appeal corp.

$7,070

Interest Revenue ($7,000*6%*60/365)

$69

Notes Receivable- Appeal corp.

$7,000

(To record the dishonouring of notes)

November 16, 2019

Notes Receivable- Crosby Inc.

$17,000

Cash

$17,000

(To record the issue of notes)

December 5, 2019

Cash

$7,069

Accounts Receivables- Appeal Corp.

$7,069

(To record the amount collected)

December 31, 2019

Interest Receivable ($17,000*16%*45/365)

$335

Interest Revenue

$335

(To record interest revenue)

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