Q22E - Horngren'S Financial And Managerial Accounting

Question

Question: Endurance Running Shoes reports the following:

2018
May 6	Recorded credit sales of \(102,000. Ignore Cost of Goods Sold.
Jul. 1	Loaned \)18,000 to Jerry Paul, an executive with the company, on a one-year, 7% note
Dec. 31	Accrued interest revenue on the Paul note
2019
Jul. 1	Collected the maturity value of the Paul note

Journalize all entries required for Endurance Running Shoes.

Step-by-Step Solution

Answer

Answer:

Journal entries are recorded in Step 2. 

Step 1: Definition of notes receivables

The notes receivable means the note that is received by the company. The notes receivable are issued by the debtor of the company and the debtor pays interest to the company on the notes.

Step 2: Journalizing transactions

$$\begin{gathered} \mathbf{Interest} \mathbf{Amount}\mathbf{=} \mathbf{Loan} \mathbf{Amount}\mathbf{\times } \mathbf{Interest} \mathbf{Rate}\mathbf{\times } \mathbf{Time} \mathbf{Period} \\ \mathbf{=}\mathbf{\$}\mathbf{18}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{7}\mathbf{\%}\mathbf{\times }\frac{\mathbf{6}}{\mathbf{12}} \\ \mathbf{=}\mathbf{\$}\mathbf{630} \end{gathered}$$

Date	Particulars	Debit	Credit
May 06	Accounts Receivables	$102,000
	Sales Revenue		$102,000
	(Sold goods on account)
July 1	Notes Receivable- Jerry Paul	$18,000
	Cash		$18,000
	(Lend money to Jerry Paul)
December 31	Interest Receivable	$630
	Interest Revenue		$630
	(Accrued interest revenue)
2019
July 01	Cash	$19,260
	Notes Receivable		$18,000
	Interest Receivable		$630
	Interest Revenue		$630
	(Collected note receivable plus interest.)