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Analyzing and journalizing notes receivable transactions

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Fundamental Accounting Principals, 18th Edition
Wild, Larson, Chiappetta, McGraw-Hill Irwin

Problem 9-5A: Analyzing and journalizing notes receivable transactions.

The following transactions are from Ohlmeyer Company.

2007

Dec. 16 Accepted a $10,800, 60-day, 8% note dated this day in granting Danny Todd a
time extension on his past-due account receivable.
31 Made an adjusting entry to record the accrued interest on the Todd note.

2008

Feb. 14 Received Todd's payment of principal and interest on the note dated December
16.
Mar. 2 Accepted a $6,120, 8%, 90-day note dated this day in granting a time extension
on the past-due account receivable from Midnight Co.
17 Accepted a $2,400, 30-day, 7% note dated this day in granting Ava Privet a time
extension on her past-due account receivable.
Apr. 16 Private dishonored her note when presented for payment.
June 2 Midnight Co. refuses to pay the note that was due to Ohlmeyer Co. on May 31.
prepare the journal entry to change the dishonored note plus accrued interest on
Midnight Co.'s accounts receivable.
July 17 Received payment from Midnight Co. for the maturity value of its dishonored
note plus interest for 46 days beyond maturity at 8%.
Aug. 7 Accepted a $5,450, 90-day, 10% note dated this day in granting a time extension
on the past-due account receivable of Mulan Co.
Sept. 3 Accepted a $2,120, 60-day, 10% note dated this day in granting Noah Carson a
time extension on his past-due account receivable.
Nov. 2 Received payment of principal plus interest from Carson for the September 3
note.
Nov. 5 Received payment of principal plus interest from Mulan for the August 7 note.
Dec. 1 Wrote off the Ava Privet account against Allowance for Doubtful Accounts.

1. Required: Prepare journal entries to record these transactions and events. (Round to
the nearest dollar.)

2. Analysis Component: What reporting is necessary when a business pledges
receivables as a security for a loan and the loan is still
outstanding at the end of the period? Explain the reason for
this and the accounting principal being satisfied.

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Fundamental Accounting Principals, 18th Edition
Wild, Larson, Chiappetta, McGraw-Hill Irwin

Problem 9-5A: Analyzing and journalizing notes receivable transactions.

The following transactions are from Ohlmeyer Company.

2007

Dec. 16 Accepted a $10,800, 60-day, 8% note dated this day in granting Danny Todd a
time extension on his past-due account receivable.

The accounts receivable is converted to a notes receivable. The journal entry is
Dec. 16 Notes Receivable-D. Todd 10,800
Accounts Receivable-D. Todd 10,800

31 Made an adjusting entry to record the accrued interest on the Todd note.

The interest has accrued for 15 days. The interest amount is 10,800X8%X15/360 = $36. The entry is
Dec. 31 Interest Receivable 36
Interest Revenue 36

2008

Feb. 14 Received Todd's payment of principal and interest on the note dated December
16.

The balance days are 60-15=45. The interest revenue for 45 days is 10,800X8%X45/360 = $108. The journal entry is
Feb. 14 Cash 10,944
Interest Revenue 108
Interest Receivable 36
Notes Receivable-D. Todd 10,800

Mar. 2 Accepted a $6,120, 8%, 90-day note dated this day in granting a time extension
...

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Accounting Problem

Problem 1
Presented below are various receivable transactions entered into by Brewer Tool Company. Indicate whether the receivables are reported as accounts receivable, notes receivable, or other receivables on the balance sheet.

a. Loaned a company officer $4,000 ______________
b. Accepted a $2,000 promissory note from a customer as payment on account. ____________
c. Determined that $10,000 income tax refund is due from the IRS. ___________
d. Sold goods to a customer on account for $5,000 _________
e. Recorded $500 accrued interest on a note receivable due next year. ____________
f. Made an American Express credit card sale for $3,000
g. Advanced $1,000 to a trusted employee ___________

Problem 2
On October 1st, 2008. Foster Company establishes an imprest petty cash fund by issuing a check for $300 to Mary Mann, the custodian of the petty cash fund. On October 31, 2008, Mary Mann submitted the following paid petty cash receipts for replenishment of the petty cash fund when there is a $55 cash in the fund:
Freight-In 57
Office Supplies Expense 55
Entertainment of Cliente 90
Postage expense 40
Instructions:
Prepare the journal entries required to establish the petty cash fund on October 1st and the replenishment of the fund on October 31st.

Problem 3

Ogleby Boat Company's bank statement for the month of September showed a balance per bank of $8,000. The company's Cash account in the general ledger had a balance of $6,459 at September 30. Other information is as follows:
1- Cash receipts for September 30 recorded on the company's books were $7,700 but this amount does not appear on the bank statement.
2- The bank statement shows a debit memorandum for $40 for check printing charges.
3- Check No. 119 payable to Lann Company was recored in the cash payments journal and cleared the bank for $248. A review of the accounts payable subsidiary ledger shows a $36 credit balance in the account of Lann Company and that the payment to them should have been for $284.
4- The Total amount of checks still outstanding at September 30 amounted to $6,000
5- Check No. 138 was correctly written and paid by the bank for $408. The cash payment journal reflects an entry for Check No. 138 as a debit to Accounts Payable and a credit to Cash in Bank for $490.
6- The bank returned an NSF check from a customer for $360.
7- The bank included a credit memorandum for $1,560 which represents collection of a customer's note by the bank for the company; principal amount of the note was $1,500 and interest was $60. Interest has not been accrued.
Instructions:
a- Prepare a bank reconciliation for Ogleby Boat company at September 30.
b- Prepare any adjusting entries necessary as a result of the bank reconciliation.

Problem 4
The following information is available for Wenger Company
Beginning accounts receivable $800,000
Ending accounts receivable 1,200,000
Net sales 10,000,000
Instructions:
Compute the receivables turnover ratio and the average collection period.

Problem 5
Brama distributors has the following transactions related to notes receivable during the last two months of the year.
Dec. 1st Loaned $120,000 cash to E. Hoffer on a 1-year, 6% note.
Dec. 2nd Sold goods to J. Smith, receiving a $24,000, 60-day, 7% note.
Dec. 31st Accrued interest revenue on all notes receivable.
Instructions:
Journalize the transactions for Brama Distributors.

Problem 6

Lloyd Products is undecided about which base to use in estimating uncollectible accounts. On December 31st, 2008. The balance in accounts receivable was $680,00 and the net credit sales amounted to $3,500,000 during 2008. An aging analysis of the accounts receivable indicated that $36,000 in accounts are expected to be uncollectible. Past experience has shown that about 1% of net credit sales eventually are uncollectible.
Instructions:
Prepare the adjusting entries to record estimated bad debts expense using the (1) percentage of sales basis and (2) the percentage of receivables basis under each of the following independent assumptions:
a- Allowance for Doubtful accounts has a credit balance of $3,200 before adjustment.
b- Allowance for Doubtful accounts has a credit balance of $730 before adjustment.

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