Concept explainers
(1)
Notes Payable
Notes payable is a legal agreement prepared between issuer and payee. It is agreement between issuer and payee towards payment of total amount (principal and interest) based on certain interest and conditions. Here, particular value of interest is paid on the face value of note payable and thus, referred to interest payable.
To prepare: Journal entries for these transactions.
(1)
Explanation of Solution
On September 5, 2016 (transaction a), the loan is not made from the line of credit. Hence, no entry is made.
Date | Accounts and Explanation | Post Ref | Debit ($) | Credit ($) | ||||
Transaction b | Cash | 12,000,000 | ||||||
October | 2018 | |||||||
Notes Payable | 12,000,000 | |||||||
(To record the borrowed of cash on 10% notes payable) |
When cash is borrowed on 10% notes payable, cash and notes payable increases. Cash is an asset and thus, Cash account increases with $12,000,000. Notes payable is a liability and thus, credit Notes payable account with $12,000,000.
Journal entry to record collection of refundable deposit
Date | Accounts and Explanation | Post Ref | Debit ($) | Credit ($) | ||||
Transaction c |
Cash |
2,600 | ||||||
December | 2018 | |||||||
Liability - Refundable Deposits | 2,600 | |||||||
(To record the collection of refundable deposits) |
When collection of refundable deposits is recorded, cash and liability – refundable deposits are the accounts affected. Cash is an asset and thus, Cash account increases with $2600 due to collection of refundable deposits. Notes payable is a liability and is increased. Thus, credit Notes payable account with $2,600.
Journal entry to record the sales for 2018
Date | Accounts and Explanation | Post Ref | Debit ($) | Credit ($) | ||||
Transaction d | ||||||||
December | 2018 |
|
4,346,000 | |||||
Sales Revenue | 4,100,000 | |||||||
Sales Taxes Payable | 246,000 | |||||||
(To record the sales for 2018) |
When sales for 2018 are recorded, the following three accounts are affected: Accounts receivables, sales revenue, and sales tax payable. Accounts receivables increases the asset due to sales made on credit. Sales revenue increases the equity due to receipt of revenue due to sales made. Sales tax payable increases the liability account since, tax amount is due. Thus, asset (account receivable), equity (sales revenue), and liability (sales tax payable) increases. Hence, debit accounts receivable account with 4,346,000; credit Sales Revenue and Sales Taxes Payable with $4,100,000 and $246,000.
Working note to determine the amount of sales tax due is as follows:
Journal entry to record the interest expense for 3 months.
Date | Accounts and Explanation | Post Ref | Debit ($) | Credit ($) | ||||
Transaction e | ||||||||
December | 2018 | Interest Expense | 300,000 | |||||
Interest Payable | 300,000 | |||||||
(To record the interest expense for 3 months) |
When interest expense is recorded for 3 months, interest expense and interest payable accounts are affected. Interest expense affects the equity account and interest payable affects the liability account. Interest expense is an expense and reduces the equity. Thus, debit interest expense with $300,000. Interest Payable is a liability and is increased. Thus, credit interest payable with $300,000. Working note for determining interest expense is as below:
Journal entry to record the issue of
Date | Accounts and Explanation | Post Ref | Debit ($) | Credit ($) | ||||
Transaction f | ||||||||
February | 2019 | Cash | 10,000,000 | |||||
Bonds Payable | 10,000,000 | |||||||
(To record the issue of bonds at face value) |
When bonds are issued at face value, cash and bonds payable account are affected. Cash is an asset and increased due to issuance of bonds. Bonds payable is a liability and is increased due to issuance. Hence, debit cash account and credit bonds payable account with $10,000,000.
Journal entry to record the payment of loan and interest.
Date | Accounts and Explanation | Post Ref | Debit ($) | Credit ($) | ||||
Transaction f | Notes Payable (L–) | 12,000,000 | ||||||
March | 2019 | |||||||
Interest Expense (E–) | 200,000 | |||||||
Interest Payable (L–) | 300,000 | |||||||
Cash (A–) | 12,500,000 | |||||||
(To record the payment of loan and interest) |
Payment of loan involves the following accounts: Notes payable, Interest expense, interest payable account, and cash. Notes payable and interest payable are liability and is decreased due to payment of loan and interest. Interest expense is an expense and decreases the equity account. Cash is an asset and decreased due to payment of loan and interest. Thus, debit notes payable, interest expense, and interest payable with $12,000,000, $200,000, and $300,000; credit Cash with $12,500,000.
Working note to calculate interest expense for 2 months (December 31, 2018 to March 1, 2019) on 10% note is as follows:
Working note for determining interest payable is as follows:
Working note to determine the amount of cash is as follows:
Journal entry to record the return of refundable deposits.
Date | Accounts and Explanation | Post Ref | Debit ($) | Credit ($) | ||||
Transaction g | ||||||||
March | 2017 | Liability - Refundable Deposits (L+) | 1,300 | |||||
Cash (A–) | 1,300 | |||||||
(To record the return of refundable deposits) |
Return of refundable deposits involves Liability - Refundable Deposits and Cash account. Liability – Refundable deposits is a liability and increased due to returns made. Cash is decreased to refunds made. Thus, debit Liability - Refundable Deposits account and credit Cash account with $1,300.
Working notes to determine the amount of return of refundable deposits:
(2)
To prepare: Current and long-term liability sections of the December 31, 2016, balance sheet.
(2)
Explanation of Solution
Balance sheet (Partial) December 31, 2016 | |
Current liabilities: | |
Accounts payable | $252,000 |
Current portion of bank loan | $2,000,000 |
Liability – Refundable deposits | $2,600 |
Sales taxes payable | $246,000 |
Accrued interest payable | $300,000 |
Total current liabilities | $2,800,600 |
Long-term liabilities: | |
Bank loan to be refinanced on a long-term basis | $10,000,000 |
The total amount of loan is $12,000,000. The company is intended to refinance the total amount of bank loan. But, actually refinancing is done only for $10,000,000. Hence, current portion of loan is $2,000,000 ($12,000,000 – $10,000,000).
Want to see more full solutions like this?
Chapter 13 Solutions
GEN COMBO INTERMEDIATE ACCOUNTING; CONNECT ACCESS CARD
- Comprehensive Receivables Problem Blackmon Corporations December 31, 2018, balance sheet disclosed the following information relating to its receivables: The company has a recourse liability of 700 related to a note receivable sold to a bank. During 2019, credit sales (terms, n/EOM) totaled 2,200,000, and collections on accounts receivable (unassigned) amounted to 1,900,000. Uncollectible accounts totaling 18,000 from several customers were written off, and a 1,350 accounts receivable previously written off was collected. Additionally, the following transactions relating to Blackmons receivables occurred during the year: On December 31, 2019, an aging of the accounts receivable balance indicated the following: Required: 1. Prepare the journal entries to record the preceding receivable transactions during 2019 and the necessary adjusting entry on December 31, 2019. Assume a 360-day year for interest calculations and round calculations to the nearest dollar. 2. Prepare the receivables portion of Blackmons December 31, 2019, balance sheet. 3. Next Level Compute Blackmons accounts receivable turnover in days, assuming a 360-day business year. What is your evaluation of its collection policies? 4. If Blackmon uses IFRS, what might be the heading of the section for the receivables reported in Requirement 2?arrow_forwardNotes Receivable On September 1, 2016, Dougherty Corp. accepted a six-month, 7%, $45,000 interest-bearing note from Rozelle Company in payment of an account receivable. Doughertys year-end is December 31. Rozelle paid the note and interest on the due date. Required Who is the maker and who is the payee of the note? What is the maturity date of the note? Prepare all necessary journal entries that Dougherty needs to make in connection with this note.arrow_forwardProblem 1 On September 1, 2020, Rayhak Company assigned specific receivables totaling to P750,000 to Pak Bank as a collateral on a P625,000, 12% loan. Rayhak will continue to collect the assigned accounts receivable. The bank also assessed a 2% service charge on the total accounts receivable assigned. Rayhak is to make monthly payments to the bank with the cash collected on the assigned accounts receivable. Collections of assigned account during September 2020totaled P260,000 gross of cash discounts amounting to P3,500. Prepare all the e journal entries relating to the problem for the month of September 2020. (Books of Rayhak)arrow_forward
- Prepare the appropriate journal entries through the Problem 8-4 (IAA) Rose Company provided the following selected transactions related to liabilities: 2021 Feb. 1 Negotiated a revolving credit agreement with Second Bank which can be renewed annually upon bank approval. The amount available under the line of credit is P30,000,000 at the prime bank rate. April 1 Arranged a 3-month bank loan of P12,000,000 with Second Bank under the line of credit agreement. Interest at the prime rate of 8% was payable at maturity. July 1 Paid the 8% note at maturity. Nov. 1 Supported by the credit line, Rose Company issued P20,000,000 of commercial paper on a nine-month note. Interest was discounted at issuance at a 6% discount rate. Dec. 31 Recorded any necessary adjusting entry. 2022 Aug. 1 Paid the commercial paper at maturity. Required: maturity of each liability. 279arrow_forwardEA14. LO 9.6 Arvan Patel is a customer of Bank’s Hardware Store. For Mr. Patel’s latest purchase on January 1, 2018, Bank’s Hardware issues a note with a principal amount of $480,000, 13% annual interest rate, and a 24-month maturity date on December 31, 2019. Record the journal entries for Bank’s Hardware Store for the following transactions. Note issuance Subsequent interest entry on December 31, 2018 Honored note entry at maturity on December 31, 2019. Solutionarrow_forwardJournalizing note receivable transactions including a dishonored note On September 30, 2018, Team Bank loaned $94,000 to Kendall Warner on a one-year, 6% note. Team’s fiscal year ends on December 31. Requirements Journalize all entries for Team Bank related to the note for 2018 and 2019. Which party has a a. note receivable? b. note payable? c. interest revenue? d. interest expense? 3. Suppose that Kendall Warner defaulted on the note. What entry would Team record for the dishonored note?arrow_forward
- Instructions General Journal Balance Sheet On November 16, 2019, Clear Glass Company borrowed $20,000 from First American Bank by issuing a 90-day, 1. Prepare the necessary journal entries to record: 2. Show how the preceding items would be reported on the December 31, 2019, balance sheet. non-interest-bearing note. The bank discounted this note at 16% and remitted the difference to Clear Glass. 1. the issuance of the note on November 16, 2019 2. the related adjustment on December 31, 2019 Required: Balance Sheet Instructions 3. payment of the note on February 15, 2020 1. Prepare the journal entries of Clear Glass to record the preceding information, the related calendar year-end adjusting entry, and payment of the note at maturity. 4. interest expense for 2020 on February 15, 2020 2. Show how the preceding items would be reported on the December 31, 2019, balance sheet. CLEAR GLASS COMPANY 3. Next Level What is Clear Glass Company's effective interest rate? Partial Balance Sheet…arrow_forwardPROBLEM 6: HILO CORP. had the following long-term receivable account balances at December 31, 2019 Note receivable from sale of division P4,500,000 1,200,000 Note receivable from officer Transactions during 2020 and other information relating to Hilo’s long-term receivables were as follows: 1. The P4,500,000 note receivable is dated May 1, 2019, bears interest at 9%, and represents the balance of the consideration received from the sale of Hilo's electronics division to Bahag Co. Principal payments of P1,500,000 plus appropriate interest are due on May 1, 2020, 2021, and 2022. The first principal and interest payment was made on May 1, 2020. Collection of the note installments is reasonably assured. 2. The P1,200,000 note receivable is dated December 31, 2019, bears interest interest at 8%, and is due on December 31, 2022. The note is due from Emiliana Barracuda, president of Hilo Co. Interest is payable annually on December 31 and interest payments were paid on their due dates through…arrow_forwardProblem 1 On Jan. 1, 2020, Aldama Company has a note payable to bank in the amount of Php2,800,000. Transactions during 2020 and other information relating to liabilities are: - Principal amount of the note payable to bank is Php2.8M and bears a 12% interest. The note is dated April 1, 2019 and is payable in four equal annual installments beginning April 1, 2020. The first principal and interest payment was made on April 1, 2020. - On July 1, 2020, the entity issued for Php1,774,000 a Php2,000,000 face amount note to a wealthy shareholder. The note was dated July 1, 2020 and matures on July 1, 2021. No explicit interest rate is stated in the note and the entire face amount of the note payable is at maturity date Required: a. Prepare journal entries for 2020 b. Compute the total current liabilities on December 31, 2020 C. Determine the interest expense to be reported in 2020arrow_forward
- ★ Problem 1-6 (IAA) Cavalier Company provided the following information on December 31, 2021: Accounts payable Notes payable-bank Interest payable Mortgage note payable -10% Bonds payable ✰ 6,600,000 8,000,000 Bank notes payable include two separate notes payable to First Bank 150,000 2,000,000 4,000,000 A P3,000,000, 10% note issued March 1, 2020, payable on demand. Interest is payable every six months. A one-year, P5,000,000, 11% note issued January 2, 2021. On December 31, 2021, the entity negotiated a written agreement with First Bank to replace the note with a 2-year, P5,000,000, 10% note to be issued January 2, 2022. The 10% mortgage note was issued October 1, 2020 with a term of 10 years. Terms of the note give the holder the right to demand immediate payment if the entity fails to make a monthly interest payment within 10 days of the date the payment is due. On December 31, 2021, the entity is three months behind in paying the required interest payment. Required: Compute total…arrow_forwardProblem 9-12 (IAA) On April 1, 2020, Aljean Company discounted with recourse a 9-month, 10% note dated January 1, 2020 with face amount of P6,000,000. The bank discount rate is 12%. The discounting transaction is accounted for as a conditional sale with recognition of contingent liability. On October 1, 2020, the maker dishonored the note receivable. The entity paid the bank the maturity value of the note plus protest fee of P50,000. On December 31, 2020, the entity collected the dishonored note receivable in full plus 12% annual interest on the total amount due. 1. What amount was received from the note receivable discounting on April 1, 2020? a. 6,063,000 b. 6,450,000 c. 6,150,000 d. 5,963,000 2. What amount should be recognized as loss on note receivable discounting? 450,000 b. 387,000 87,000 d. а. с. 63,000 3. What is the total amount collected from the customer on December 31, 2020? а. 6,450,000 b. 6,500,000 c. 6,695,000 d. 6,662,500 4. If the discounting is secured borrowing,…arrow_forwardProblem 7: Purple Company showed the following balances on December 31, 2019: 2,000,000 (60,000) Accounts receivable Allowance for doubtful accounts The following transactions transpired during the year 2020: a. On May 1, received a P300,000, six month, 12% interest bearing note from MN, a customer, in settlement of account. b. On June 30, Purple Company factored P400,000, of its accounts receivable to a finance company. The finance company charged a factoring fee of 5% of the accounts factored and withheld 20% of the amounts factored. c. On August 1, discounted the MN note at the bank at 15%. d. On November 1, MN defaulted on the P300,000 note. Purple Company paid the bank the total amount due plus a P12,000. protest fee and other bank charges. e. On December 31, Purple Company assigned P600,000 of its accounts receivable to a bank under a non-notification basis. The bank advanced 80% less a service fee of 5% of the accounts assigned. Purple Company signed a promissory note for the…arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage LearningFinancial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage LearningCornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning