Financial Accounting
Financial Accounting
5th Edition
ISBN: 9781259914898
Author: SPICELAND
Publisher: MCG
Question
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Chapter 5, Problem 8PA

1.

To determine

Prepare the acceptance of the note on December 1, 2021.

1.

Expert Solution
Check Mark

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, 2021:

DateAccount Title and ExplanationDebit($)Credit($)

December 1, 2021

Notes receivable (1)90,000 
 Service revenue90,000
 (To record the services provided  and acceptance of note)  

Table (1)

  • 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

Prepare journal entry to record the interest collected on December 1, for 2022 and 2023 and the adjustment for interest revenue on December 31, 2021, 2022 and 2023.

2.

Expert Solution
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Explanation of Solution

Journal entry for adjustment of interest receivable:

DateAccount Title and ExplanationDebit ($)Credit ($)
December 31, 2021Interest receivable (1)750
Interest revenue750
(To record adjustment for accrued interest)

Table (2)

Journal entry for receipt of annual interest:

DateAccount Title and ExplanationDebit ($)Credit ($)
December 1, 2022Cash9,000
Interest receivable (1)750
Interest revenue (2)8,250
(To record receipt of annual interest)

Table (3)

 Journal entry for adjustment for accrues interest:

DateAccount Title and ExplanationDebit ($)Credit ($)
December 31, 2022Interest receivable (1)750
Interest revenue750
(To record adjustment for accrued interest)

Table (4)

Journal entry for receipt of annual interest:

DateAccount Title and ExplanationDebit ($)Credit ($)
December 1, 2023Cash9,000
Interest receivable (1)750
Interest revenue (2)8,250
(To record receipt of annual interest)

Table (5)

 Journal entry for adjustment for accrues interest:

DateAccount Title and ExplanationDebit ($)Credit ($)
December 31, 2023Interest receivable (1)750
Interest revenue750
(To record adjustment for accrued interest)

Table (6)

Working notes:

Calculate the amount of interest revenue accrued for 1 month (December 1 to 31):

 Interest receivable=Face value×interest×fraction of the year.=$90,000×10%×112=$750

(1)

Calculate the amount of interest revenue earned from January 1 to November 30:

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

(2)

It is given that interest has to be paid each year on December 1.  But, interest revenue has to be recorded and adjusted at the end of each year that is December 31 for $750.

For Adjustment of interest receivable on December 31, 2021:

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

For receiving of annual interest on December 1, 2022:

  • 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.

For adjustment of interest receivable on December 31, 2022:

  • 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.

For receiving of annual interest on December 1, 2023:

  • 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.

For adjustment of interest receivable on December 31, 2023:

  • 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.

3.

To determine

Record the journal entry for Cash collection on December 1, 2024:

3.

Expert Solution
Check Mark

Explanation of Solution

Journal entry for cash collection on December 1, 2024:

DateAccount Title and ExplanationDebit ($)Credit ($)
December 1, 2024Cash99,000
Notes receivable90,000
Interest receivable (1)750
Interest revenue (2)8,250
(To record cash collection of the note and interest)

Table (7)

For receiving of annual interest on December 1, 2024:

  • 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. 11SSQCh. 5 - Prob. 12SSQCh. 5 - 12. On May 1, 2021, Nees Manufacturing lends...Ch. 5 - Prob. 14SSQCh. 5 - Prob. 15SSQCh. 5 - Prob. 1AECh. 5 - Prob. 2AECh. 5 - Prob. 1RQCh. 5 - Prob. 2RQCh. 5 - Prob. 3RQCh. 5 - Prob. 4RQCh. 5 - Prob. 5RQCh. 5 - Prob. 6RQCh. 5 - Prob. 7RQCh. 5 - Prob. 8RQCh. 5 - Prob. 9RQCh. 5 - Prob. 10RQCh. 5 - Prob. 11RQCh. 5 - Prob. 12RQCh. 5 - Prob. 13RQCh. 5 - Prob. 14RQCh. 5 - Prob. 15RQCh. 5 - Prob. 16RQCh. 5 - Prob. 17RQCh. 5 - Prob. 18RQCh. 5 - Prob. 19RQCh. 5 - Prob. 20RQCh. 5 - Prob. 21RQCh. 5 - Prob. 22RQCh. 5 - Prob. 23RQCh. 5 - Prob. 24RQCh. 5 - Prob. 25RQCh. 5 - Prob. 1BECh. 5 - Prob. 2BECh. 5 - Prob. 3BECh. 5 - Prob. 4BECh. 5 - Prob. 5BECh. 5 - Prob. 6BECh. 5 - Prob. 7BECh. 5 - Prob. 8BECh. 5 - Prob. 9BECh. 5 - Calculate uncollectible accounts using the aging...Ch. 5 - Calculate uncollectible accounts using the aging...Ch. 5 - Use the direct write-off method to account for...Ch. 5 - Use the direct write-off method to account for...Ch. 5 - Use the direct write-off method to account for...Ch. 5 - BE5–15 Calculate the missing amount for each of...Ch. 5 - Calculate interest revenue on notes receivable...Ch. 5 - Prob. 17BECh. 5 - Prob. 18BECh. 5 - Prob. 19BECh. 5 - Prob. 1ECh. 5 - Prob. 2ECh. 5 - Record credit sale and cash collection with a...Ch. 5 - Prob. 4ECh. 5 - Prob. 5ECh. 5 - Prob. 6ECh. 5 - Establish an allowance for uncollectible accounts...Ch. 5 - Record the adjustment for uncollectible accounts...Ch. 5 - Prob. 9ECh. 5 - Record the adjustment for uncollectible accounts...Ch. 5 - Record the adjustment for uncollectible accounts...Ch. 5 - E5–12 Consider the following transactions...Ch. 5 - Prob. 13ECh. 5 - Prob. 14ECh. 5 - Prob. 15ECh. 5 - E5-16 Refer to the information in...Ch. 5 - Record notes receivable and interest revenue...Ch. 5 - E5–18 Below are amounts (in millions) from three...Ch. 5 - Compare the percentage-of-receivables method and...Ch. 5 - Compare the percentage-of-receivables method and...Ch. 5 - Prob. 21ECh. 5 - Prob. 22ECh. 5 - Calculate the amount of revenue to recognize...Ch. 5 - Prob. 2PACh. 5 - Prob. 3PACh. 5 - Prob. 4PACh. 5 - Prob. 5PACh. 5 - Prob. 6PACh. 5 - Prob. 7PACh. 5 - Prob. 8PACh. 5 - Prob. 9PACh. 5 - Prob. 1PBCh. 5 - Prob. 2PBCh. 5 - Prob. 3PBCh. 5 - Prob. 4PBCh. 5 - Compare the direct write-off method to the...Ch. 5 - P5–6B Wanda B. Rich is the CEO of Outlet Flooring,...Ch. 5 - Prob. 7PBCh. 5 - Prob. 8PBCh. 5 - Prob. 9PBCh. 5 - Prob. 1APCh. 5 - American Eagle Outfitters, Inc. AP5–2 Financial...Ch. 5 - Prob. 3APCh. 5 - Prob. 4APCh. 5 - Prob. 5APCh. 5 - Prob. 6APCh. 5 - Prob. 7APCh. 5 - Prob. 8AP
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