Assignment: Present entries to record the following for a business that uses the Allowance Method: Record the adjusting entry at 12/31/19, the end of the fiscal year to provide for doubtful accounts. The accounts receivable account has a balance of $100,000 and the contra asset account, before adjustment has a debit balance of $700. Analysis of receivables indicates doubtful accounts of $4,500
Now look at an example on the Payee’s books:
Nov 1: We sell our product on account $1000 terms net 30 days:
Sales 1000
Dec 1: The customer is unable to pay so we request a promissory note since it is a stronger legal claim and we can earn interest. Suppose the note is a 6%, 90- day note. We are receiving a note on account. This means we are replacing the accounts receivable with a note receivable.
Notes Receivable 1000
Accounts Receivable 1000 received a note on account
Dec 31:
Interest Receivable 5
Interest Revenue 5
Dec 31: Closing entry.
Interest Revenue 5 Debit Income Summary 5 Credit
The due date of the note is 90 days from December 1. We do not count December1 and we are assuming we are not going into a leap year. Since some of you are calendar challenged, I will give you the due date which is March 1.
Cash 1015 (Note plus $15 interest)
Notes Receivable 1000
Interest Receivable 5
Interest Revenue 10
We have just completed the entries on the Payee’s books. Here are the entries on the Maker’s books:
Nov 1: Purchases (periodic method) 1000
Accounts Payable 1000
Dec 1: Accounts Payable 1000
Notes Payable 1000 issued a note on account
Dec 31: Adjusting Entry – Interest Expense 5
Interest Payable 5
Dec 31: Closing Entry Income Summary 5
Interest expense 5
March 1: Notes Payable 1000
Interest Payable 5
Interest expense 10
Cash 1015
Assignment:
Present entries to record the following for a business that uses the Allowance Method:
Record the adjusting entry at 12/31/19, the end of the fiscal year to provide for doubtful accounts. The accounts receivable account has a balance of $100,000 and the contra asset account, before adjustment has a debit balance of $700. Analysis of receivables indicates doubtful accounts of $4,500
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