(a)
Introduction:
The company issues notes payable to the lender as a promise to pay the principal amount along with the stated interest on specified date.
To record:
(b)
Introduction:
The company issues notes payable to the lender as a promise to pay the principal amount along with the stated interest on specified date.
To record:
(c)
Introduction:
The company issues notes payable to the lender as a promise to pay the principal amount along with the stated interest on specified date.
To record:
Journal entry on 1st March 2021.
(d)
Introduction:
The company issues notes payable to the lender as a promise to pay the principal amount along with the stated interest on specified date.
To record:
Journal entry on 1st July 2021.
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Cornerstones of Financial Accounting
- Resin Milling issued a $390,500 note on January 1, 2018 to a customer in exchange for merchandise. The merchandise had a cost to Resin Milling of $170,000. The terms of the note are 24-month maturity date on December 31, 2019 at a 5% annual interest rate. The customer does not pay on its account and dishonors the note. Record the journal entries for Resin Milling for the following transactions. A. Initial sale on January 1, 2018 B. Dishonored note entry on January 1, 2020, assuming interest has not been recognized before note maturityarrow_forwardReceivables Issues Magrath Company has an operating cycle of less than one year and provides credit terms for all of its customers. On April 3, 2019, the company factored, without recourse, some of its accounts receivable. Magrath does not normally factor its receivables. On August 1, 2019, Magrath sold special order merchandise and received an interest-bearing note due April 30, 2020. Magrath uses the allowance method to account for uncollectible accounts. During 2019, some accounts were written off as uncollectible, and other accounts previously written off as uncollectible were collected. Required: 1. Explain how Magrath should account for and report the accounts receivable factored on April 3, 2019. Why is this accounting treatment appropriate? 2. Explain how Magrath should report the effects of the interest-bearing note on its income statement for the year ended December 31, 2019, and its December 31, 2019, balance sheet. 3. Explain how Magrath should account for the collection of the accounts previously written off as uncollectible. 4. What are the two basic approaches to estimating uncollectible accounts under the allowance method? What is the rationale for each approach?arrow_forwardSpath Company borrows 75,000 by issuing a 4-year, noninterest-bearing note to a customer on January 1, 2019. In addition, Spath agrees to sell inventory to the customer at reduced prices over a 5-year period. Spaths incremental borrowing rate is 12%. The customer agrees to purchase an equal amount of inventory each year over the 5-year period so that a straight-line method of revenue recognition is appropriate. Required: Prepare the journal entries on Spaths books for 2019 and 2020. (Round answers to 2 decimal places.)arrow_forward
- Element Surfboards issued a $210,800 note on January 1, 2018 to a customer, Leona Marland, in exchange for merchandise. Terms of the note are 9-month maturity date on October 1, 2018 at a 10.2% annual interest rate. Leona Marland does not pay on her account and dishonors the note. On December 2, 2018, Element Surfboards decides to sell the dishonored note to a collection agency for 30% of its value. Record the journal entries for Element Surfboards for the following transactions. A. Initial sale on January 1, 2018 B. Dishonored note entry on October 1, 2018 C. Receivable sale on December 2, 2018arrow_forwardRain T-Shirts issued a $440,600 note on January 1, 2018 to a customer, Larry Potts, in exchange for merchandise. The merchandise had a cost to Rain T-Shirts of $220,300. The terms of the note are 24-month maturity date on December 31, 2019 at a 4.5% annual interest rate. Larry Potts does not pay on his account and dishonors the note. Record journal entries for Rain T-Shirts for the following transactions. A. Initial sale on January 1, 2018 B. Dishonored note entry on January 1, 2020, assuming interest has not been recognized before note maturityarrow_forwardMystic Magic issued a $120,250 note on January 1, 2018 to a customer, Amy Arnold, in exchange for merchandise. Terms of the note are 9-month maturity date on October 1, 2018 at a 9.6% annual interest rate. Amy Arnold does not pay on her account and dishonors the note. On November 10, 2018, Mystic Magic decides to sell the dishonored note to a collection agency for 25% of its value. Record the journal entries for Mystic Magic for the following transactions. A. Initial sale on January 1, 2018 B. Dishonored note entry on October 1, 2018 C. Receivable sale on November 10, 2018arrow_forward
- Use the same information in RE9-1 except that the note is not interest bearing. Assume that the note is discounted at a 15% rate. RE9-1 Rescue Sequences LLC purchased inventory by issuing a 30,000, 10%, 60-day note on October 1. Prepare the journal entries for Rescue Sequences to record the purchase and payment assuming it uses a perpetual inventory system and a 360-day calendar fiscal year. Rescue Sequences LLC uses a perpetual inventory system.arrow_forwardSerene Company purchases fountains for its inventory from Kirkland Inc. The following transactions take place during the current year. A. On July 3, the company purchases thirty fountains for $1,200 per fountain, on credit. Terms of the purchase are 2/10, n/30, invoice dated July 3. B. On August 3, Serene does not pay the amount due and renegotiates with Kirkland. Kirkland agrees to convert the debt owed into a short-term note, with an 8% annual interest rate, payable in two months from August 3. C. On October 3, Serene Company pays its account in full. Record the journal entries to recognize the initial purchase, the conversion, and the payment.arrow_forwardInterest-Bearing and Non-Interest-Bearing Notes On December 11, 2019, Hooper Inc. made a credit sale to Marshall Company and required Marshall to sign a 12,000,60-day note. Required: Prepare the journal entries necessary to record the receipt of the note by Hooper, the accrual of interest on December 31, 2019, and the customers repayment on February 9, 2020, assuming: 1. Interest of 12% was in addition to the face value of the note. 2. The note was issued as a 12,000 non-interest-bearing note with a present value of 11,765. The implicit interest rate on the note receivable was 12%. Assume a 360-day year. (Round to the nearest dollar.)arrow_forward
- Korah Corporation signed a three-month, zero-interest-bearing $152,205 note on November 1, 2021 for the purchase of $150,000 of inventory. The adjusting entry made at December 31, 2021 will include a Select one: а. debit to Interest Expense for $1,470. O b. credit to Note Payable for $735. O c. credit to Interest Expense for $1,470. O d. debit to Note Payable for $735.arrow_forwardCurrent Attempt in Progress Crane Company signed a three-month, zero-interest-bearing note on November 1, 2020 for the purchase of $499700 of inventory. The face value of the note was $513500. Crane used a "Discount of Note Payable account to initially record the note. Assuming that the discount will be amortized equally over the 3-month period and that there was no adjusting entry made for November, the adjusting entry made at December 31, 2020 will include a debit to Interest Expense for $9200. O debit to Discount on Note Payable for $4600. credit to Discount on Note Payable for $4600. credit to Interest Expense for $9200. Save for Later Attempts: 0 of 1 used Submit Answerarrow_forwardE9-2 Notes Payable On December 1, 2019, Insto Photo Company purchased merchandise, invoice price $25,000, and issued a 12%, 120-day note to Ringo Chemicals Company. Insto uses the calendar year as its fiscal year and uses the perpetual inventory system. Required: Prepare journal entries on Insto’s books to record the preceding information, including the adjusting entry at the end of the year and payment of the note at maturity.arrow_forward
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