Financial accounting
Financial accounting
3rd Edition
ISBN: 9780077506902
Author: David J Spieceland Wayne Thomas Don Herrmann
Publisher: Mcgraw-Hill
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Chapter 5, Problem 5.8AP

1.

To determine

To record: The acceptance of the note on December 1, 2015.

1.

Expert Solution
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Explanation of Solution

Note receivable:

Note receivable refers to a written promise for the amounts to be received within a stipulated period of time. This written promise is issued by a debtor or borrower to lender or creditor. Notes receivable is an asset of a business.

Journal entry for the acceptance of the note on December 1, 2015:

Date Account Title and Explanation Debit($) Credit($)

December 1, 2015.

Notes receivable (1) 90,000
Service revenue 90,000
(To record the services provided  and acceptance of note)

Table (1)

Description:

  • Notes receivable is an asset and increased it. So, debit notes receivable account .
  • Service revenue is a component of stock holders’ equity and increased it. So credit service revenue account.

2.

To determine

To record: The interest collected on December 1, for 2016 and 2017 and the adjustment for interest revenue on December 31, 2015, 2016 and 2017.

2.

Expert Solution
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Explanation of Solution

Interest receivables:

Interest receivables, are non-trade receivables as these are not resulted from sales transaction or business operations.

Note receivable:

Note receivable refers to a written promise for the amounts to be received within a stipulated period of time. This written promise is issued by a debtor or borrower to lender or creditor. Notes receivable is an asset of a business.

Journal entry for adjustment of interest receivable:

Date Account Title and Explanation Debit ($) Credit ($)
December 31, 2015 Interest receivable (1) 750  
    Interest revenue   750
  (To record adjustment for accrued interest)    

Table (2)

Journal entry for receipt of annual interest:

Date Account Title and Explanation Debit ($) Credit ($)
December 1, 2016 Cash 9,000  
2015   Interest receivable (1)   750
    Interest revenue (2)   8,250
  (To record receipt of annual interest)    

Table (3)

 Journal entry for adjustment for accrues interest:

Date Account Title and Explanation Debit ($) Credit ($)
December 31, 2016 Interest receivable (1) 750  
    Interest revenue   750
  (To record adjustment for accrued interest)    

Table (4)

Journal entry for receipt of annual interest:

Date Account Title and Explanation Debit ($) Credit ($)
December 1, 2017 Cash 9,000  
2016   Interest receivable (1)   750
    Interest revenue (2)   8,250
  (To record receipt of annual interest)    

Table (5)

 Journal entry for adjustment for accrues interest:

Date Account Title and Explanation Debit ($) Credit ($)
December 31, 2017 Interest receivable (1) (2016) 750  
    Interest revenue   750
  (To record adjustment for accrued interest)    

Table (6)

Description:

For Adjustment of interest receivable on December 31, 2015:

  • Interest receivable is an asset and it increases. Hence debit the interest receivable
  • Interest revenue is a component of stock holders’ equity and increased it. Hence credit the interest revenue.

Working notes:

 Interest revenue=Face value×interest×fraction of the year.=$90,000×10%×1112=$8,250 (1)

For receiving of annual interest on December 1, 2016:

  • Cash is an asset and it increases. Hence debit the cash account.
  • Interest receivable is an asset and it decreases. Hence credit the interest receivable account.
  • Interest revenue is a component of stockholders’ equity and it increases. Hence credit the interest revenue account.

Working notes:

Interest revenue=Face value×interest×fraction of the year.=$90,000×10%×112=$750 (2)

For adjustment of interest receivable on December 31, 2016:

  • Interest receivable is an asset and it increases. Hence debit the interest receivable
  • Interest revenue is a component of stock holders’ equity and increased it. Hence credit the interest revenue.

Working notes:

 Interest revenue=Face value×interest×fraction of the year.=$110,000×12%×8.512=$9,350 (1)

For receiving of annual interest on December 1, 2017:

  • Cash is an asset and it increases. Hence debit the cash account.
  • Interest receivable is an asset and it decreases. Hence credit the interest receivable account.
  • Interest revenue is a component of stockholders’ equity and it increases. Hence credit the interest revenue account.

Working notes:

Interest revenue=Face value×interest×fraction of the year.=$110,000×12%×3.512=$3,850 (2)

For adjustment of interest receivable on December 31, 2017:

  • Interest receivable is an asset and it increases. Hence debit the interest receivable
  • Interest revenue is a component of stock holders’ equity and increased it. Hence credit the interest revenue.

Working notes:

 Interest revenue=Face value×interest×fraction of the year.=$110,000×12%×8.512=$9,350 (1)

3.

To determine

To record: Cash collection on December 1, 2018:

3.

Expert Solution
Check Mark

Explanation of Solution

Journal entry for cash collection on December 1, 2018:

Date Account Title and Explanation Debit ($) Credit ($)
December 1, 2018 Cash 99,000  
    Notes receivable   90,000
2017   Interest receivable (1)   750
    Interest revenue (2)   8,250
  (To record cash collection of the note and interest)    

Table (7)

Description:

For receiving of annual interest on December 1, 2018:

  • Cash is an asset and it increases. Hence debit the cash account.
  • Notes receivable is an asset and it decreases. Hence credit the notes receivable account.
  • Interest receivable is an asset and it decreases. Hence credit the interest receivable account.
  • Interest revenue is a component of stockholders’ equity and it increases. Hence credit the interest revenue account.

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Chapter 5 Solutions

Financial accounting

Ch. 5 - Prob. 11RQCh. 5 - Prob. 12RQCh. 5 - Prob. 13RQCh. 5 - Prob. 14RQCh. 5 - Prob. 15RQCh. 5 - Discuss the differences between the allowance...Ch. 5 - 17.Notes receivable differ from accounts...Ch. 5 - With respect to notes receivable, explain what...Ch. 5 - Prob. 19RQCh. 5 - Interest on a note receivable typically is due...Ch. 5 - Prob. 21RQCh. 5 - Prob. 22RQCh. 5 - Prob. 23RQCh. 5 - Prob. 24RQCh. 5 - Prob. 25RQCh. 5 - Prob. 5.1BECh. 5 - Prob. 5.2BECh. 5 - At the end of the first war of operations,...Ch. 5 - Record the adjustment for uncollectible accounts...Ch. 5 - Prob. 5.5BECh. 5 - Record the adjustment for uncollectible accounts...Ch. 5 - Prob. 5.7BECh. 5 - Prob. 5.8BECh. 5 - Prob. 5.9BECh. 5 - Record the write-off of uncollectible accounts...Ch. 5 - Prob. 5.11BECh. 5 - Prob. 5.12BECh. 5 - Prob. 5.13BECh. 5 - Prob. 5.14BECh. 5 - Prob. 5.15BECh. 5 - Refer to the information in BE517, but now assume...Ch. 5 - Prob. 5.1ECh. 5 - Prob. 5.2ECh. 5 - Record credit sale and cash collection with a...Ch. 5 - Prob. 5.4ECh. 5 - Prob. 5.5ECh. 5 - On April 25, Foreman Electric installs wiring in a...Ch. 5 - Prob. 5.7ECh. 5 - Prob. 5.8ECh. 5 - Prob. 5.9ECh. 5 - Prob. 5.10ECh. 5 - Prob. 5.11ECh. 5 - Consider the following transactions associated...Ch. 5 - Prob. 5.13ECh. 5 - Prob. 5.14ECh. 5 - Prob. 5.15ECh. 5 - Prob. 5.16ECh. 5 - Prob. 5.17ECh. 5 - Prob. 5.18ECh. 5 - Prob. 5.19ECh. 5 - Prob. 5.20ECh. 5 - Prob. 5.1APCh. 5 - Prob. 5.2APCh. 5 - Prob. 5.3APCh. 5 - Prob. 5.4APCh. 5 - Compare the direct write-off method to the...Ch. 5 - Prob. 5.6APCh. 5 - Prob. 5.7APCh. 5 - Prob. 5.8APCh. 5 - Assume selected financial data for Walmart and...Ch. 5 - Prob. 5.1BPCh. 5 - Prob. 5.2BPCh. 5 - Prob. 5.3BPCh. 5 - Prob. 5.4BPCh. 5 - Compare the direct write-off method to the...Ch. 5 - Prob. 5.6BPCh. 5 - Underestimating future uncollectible accounts...Ch. 5 - Prob. 5.8BPCh. 5 - Assume selected financial data for Sun Health...Ch. 5 - Prob. 5.1APCPCh. 5 - Prob. 5.2APFACh. 5 - Prob. 5.3APFACh. 5 - Prob. 5.4APCACh. 5 - Prob. 5.5APECh. 5 - Prob. 5.6APIRCh. 5 - Written Communication You have been hired as a...Ch. 5 - Earnings Management Ernie Upshaw is the...
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