Q8-38-PGB
Question
P8-38B Accounting for uncollectible accounts (aging-of-receivables method),
notes receivable, and accrued interest revenue
Relax Recliner Chairs completed the following selected transactions:
2018
Jul. 1 Sold merchandise inventory to Go-Mart, receiving a \(43,000, nine-month,
16% note. Ignore Cost of Goods Sold.
Oct. 31 Recorded cash sales for the period of \)23,000. Ignore Cost of Goods Sold.
Dec. 31 Made an adjusting entry to accrue interest on the Go-Mart note.
31 Made an adjusting entry to record bad debts expense based on an aging
of accounts receivable. The aging schedule shows that \(14,900 of accounts
receivable will not be collected. Prior to this adjustment, the credit balance
in Allowance for Bad Debts is \)10,700.
2019
Apr. 1 Collected the maturity value of the Go-Mart note.
Jun. 23 Sold merchandise inventory to Allure, Corp., receiving a 60-day, 6% note for
\(7,000. Ignore Cost of Goods Sold.
Aug. 22 Allure, Corp. dishonored its note at maturity; the business converted the
maturity value of the note to an account receivable.
Nov. 16 Loaned \)20,000 cash to Tench, Inc., receiving a 90-day, 8% note.
Dec. 5 Collected in full on account from Allure, Corp.
31 Accrued the interest on the Tench, Inc. note.
Record the transactions in the journal of Relax Recliner Chairs. Explanations are not
required. (Round to the nearest dollar.)
Step-by-Step Solution
VerifiedAnswer:
Journal entries are recorded in Step 2 and 3.
This is a method in which the company makes estimates of the number of bad debts before the amount becomes due.
Date | Particulars | Debit | Credit |
July 1, 2018 | Notes Receivable- Go-Mart | $43,000 |
|
| Sales Revenue |
| $43,000 |
|
|
|
|
October 31, 2018 | Cash | $23,000 |
|
| Sales Revenue |
| $23,000 |
|
|
|
|
December 31, 2018 | Interest Receivable | $3,440 |
|
| Interest Revenue |
| $3,440 |
| ($43,000x16%x6/12) |
|
|
|
|
|
|
December 31, 2018 | Bad Debt Expense | $4,200 |
|
| Allowance for Bad Debts |
| $4,200 |
| ($14,900-$10,700) |
|
|
Date | Particulars | Debit | Credit |
April 1, 2019 | Cash | $48,160 |
|
| Interest Revenue |
| $1,720 |
| Interest Receivable |
| $3,440 |
| Notes Receivable- Go-Mart |
| $43,000 |
|
|
|
|
June 23, 2019 | Notes Receivable- Allure corp. | $7,000 |
|
| Sales Revenue |
| $7,000 |
|
|
|
|
August 22, 2019 | Accounts Receivable- Allure corp. | $7,070 |
|
| Interest Revenue ($7000 x6%x60/365) |
| $70 |
| Notes Receivable- Allure corp. |
| $7,000 |
|
|
|
|
November 16, 2019 | Notes Receivable- Crosby Inc. | $20,000 |
|
| Cash |
| $20,000 |
|
|
|
|
December 5, 2019 | Cash | $7,070 |
|
| Accounts Receivables- Appeal Corp. |
| $7,070 |
|
|
|
|
December 31, 2019 | Interest Receivable | $197 |
|
| Interest Revenue |
| 197 |
| ($20,000 x8%x45/365) |
|
|