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Notes Receivable

Hemingway Company had the following transactions for the year ended December 31,2006.

July 1 Received a $2,000, three-month 10% promissory note from Damon Runyon in settlement of an open account.

Aug. 1 Received a $1,000, three-month 12% note receivable from Carl Sandburg for cash borrowed by Sandburg.

Oct. 1 Received notice that the Damon Runyon note had been dishonored. It is expected that Runyon will eventually pay the amount owed.

Nov. 1 Sandburg honored the note receivable in full. (Assume that interest has not been accrued.)

Instructions
Prepare the entries for the transactions above.

Solution Preview

July 1 Received a $2,000, three-month 10% promissory note from Damon Runyon in settlement of an open account.

Since the note is given in settlement of an open account, it implies that there would have been an accounts receivable and that is now converted to a notes receivables. The entry is
July 1 Notes Receivable Dr 2,000
Accounts Receivable ...

Solution Summary

The solution explains the journal entries for some transactions relating to notes receivable.

$2.19