Prepare Entries For Various Receivable Transactions (LO 1)
Prepare entries for various receivable transactions . ( LO 1 , 2 , 3 , 4 )
On January 1, 2017, Harter Company had Accounts Receivable $139,000, Notes Receivable $25,000, and Allowance for Doubtful Accounts $13,200. The note receivable is from Willingham Company. It is a 4-month, 9% note dated December 31, 2016. Harter Company prepares financial statements annually at December 31. During the year, the following selected transactions occurred.
Jan. 5 Sold $20,000 of merchandise to Sheldon Company, terms n/15. 20 Accepted Sheldon Company's $20,000, 3-month, 8% note for balance due. Feb. 18 Sold $8,000 of merchandise to Patwary Company and accepted Patwary's $8,000, 6-month, 9% note for the amount due. Apr. 20 Collected Sheldon Company note in full. 30 Received payment in full from Willingham Company on the amount due. May 25 Accepted Potter Inc.'s $6,000, 3-month, 7% note in settlement of a past-due balance on account. Aug. 18 Received payment in full from Patwary Company on note due. 25 The Potter Inc. note was dishonored. Potter Inc. is not bankrupt; future payment is anticipated. Sept. 1 Sold $12,000 of merchandise to Stanbrough Company and accepted a $12,000, 6-month, 10% note for the amount due. Instructions: Journalize the transactions.
Paper For Above instruction
The following journal entries document the receivable transactions undertaken by Harter Company during 2017, reflecting the company's process of managing accounts receivable, notes receivable, and related collections and adjustments.
1. January 5 – Sale of merchandise to Sheldon Company
Harter Company records the sale of $20,000 merchandise to Sheldon on credit, recognizing accounts receivable, and later accepts a note for the amount due.
Jan. 5
- Debit Accounts Receivable: $20,000
- Credit Sales Revenue: $20,000
This entry acknowledges the sale on credit. Since the terms are n/15, Sheldon has 15 days to pay without interest.
2. January 20 – Acceptance of note from Sheldon Company
Recognizing the note receivable from Sheldon for $20,000, including the interest earned over 3 months at 8%.
Jan. 20
- Debit Notes Receivable – Sheldon: $20,000
- Credit Accounts Receivable: $20,000
This converts Sheldon’s account receivable into a formal note receivable.
3. February 18 – Sale to Patwary Company and acceptance of note
Harter sells $8,000 in merchandise to Patwary and accepts a 6-month, 9% note.
Feb. 18
- Debit Accounts Receivable: $8,000
- Credit Sales Revenue: $8,000
And the note acceptance:
Feb. 18
- Debit Notes Receivable – Patwary: $8,000
- Credit Accounts Receivable: $8,000
4. April 20 – Collection of Sheldon Company note
Harter Company receives full payment of Sheldon’s note, including interest. Calculation of interest:
Interest = Principal x Rate x Time = $20,000 x 8% x (2 months/12 months) = $266.67
Payment total: $20,000 + $266.67 = $20,266.67
Apr. 20
- Debit Cash: $20,266.67
- Credit Notes Receivable – Sheldon: $20,000
- Credit Interest Revenue: $266.67
5. April 30 – Collection from Willingham Company
Assuming the note from Willingham matures and payment is received in full, including interest. Calculation: Note principal $25,000, term 4 months at 9%, starting Dec 31, 2016, so maturity date March 31, 2017.
Interest = $25,000 x 9% x (3 months / 12) = $562.50
Total collected: $25,000 + $562.50 = $25,562.50
April 30
- Debit Cash: $25,562.50
- Credit Notes Receivable – Willingham: $25,000
- Credit Interest Revenue: $562.50
6. May 25 – Acceptance of note from Potter Inc.
Potter Inc. owes past-due account; Harter accepts a $6,000, 3-month, 7% note.
Interest = $6,000 x 7% x (3/12) = $105
Total amount due at maturity: $6,105
May 25
- Debit Notes Receivable – Potter: $6,000
- Credit Accounts Receivable: $6,000
7. August 18 – Payment received from Patwary Company
Patwary’s note (6 months, 9%) issued February 18, matures around August 18. Calculate interest:
Interest = $8,000 x 9% x (6/12) = $360
Total payment: $8,000 + $360 = $8,360
Aug. 18
- Debit Cash: $8,360
- Credit Notes Receivable – Patwary: $8,000
- Credit Interest Revenue: $360
8. August 25 – Dishonor of Potter Inc. note
Dishonor occurs when the note is not paid at maturity, but Potter Inc. is not bankrupt, and future collection is expected. Harter company records the dishonored note and may need to record an accounts receivable if uncollected. Assuming no entry needed if the note is reclassified as an account receivable:
Aug. 25
- Debit Accounts Receivable – Potter: $6,105
- Credit Notes Receivable – Potter: $6,000
- Credit Interest Revenue: $105
9. September 1 – Sale to Stanbrough Company and acceptance of note
Harter sells $12,000 merchandise and receives a 6-month, 10% note.
Interest = $12,000 x 10% x (6/12) = $600
Total receivable at maturity: $12,600
Sept. 1
- Debit Accounts Receivable: $12,000
- Credit Sales Revenue: $12,000
Note acceptance:
Sept. 1
- Debit Notes Receivable – Stanbrough: $12,000
- Credit Accounts Receivable: $12,000
10. Recording accrued interest (connecting to fiscal year-end)
At December 31, 2017, Harter Company would accrue interest revenue earned but not yet received, for outstanding notes and receivables, to ensure proper financial reporting. For example, interest earned on Sheldon’s note for 2 months, from Jan. 20 to Dec. 31, 2017 (roughly 10 months). Calculation: Principal = $20,000; Rate = 8%; Time = 10/12 = 0.8333 years.
Interest = $20,000 x 8% x 10/12 ≈ $1,333.33
This interest should be accrued at year-end with entries such as:
- Debit Interest Receivable: $1,333.33
- Credit Interest Revenue: $1,333.33
In conclusion, these journal entries detail Harter Company's recording of sales on credit, acceptance of notes, collection of notes, accrued interest, and handling of dishonored notes, providing a comprehensive overview of their receivables management in 2017.
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