
Concept explainers
Receivables; transaction analysis
• LO7–3, LO7–5 through LO7–8
Weldon Corporation’s fiscal year ends December 31. The following is a list of transactions involving receivables that occurred during 2018:
Mar.17 | |
30 | Loaned an officer of the company $20,000 and received a note requiring principal and interest at 7% to be paid on March 30, 2019. |
May 30 | Discounted the $20,000 note at a local bank. The bank’s discount rate is 8%. The note was discounted without recourse and the sale criteria are met. |
June 30 | Sold merchandise to the Blankenship Company for $12,000. Terms of the sale are 2/10, n/30. Weldon uses the gross method to account for cash discounts. |
July 8 | The Blankenship Company paid its account in full. |
Aug. 31 | Sold stock in a nonpublic company with a book value of $5,000 and accepted a $6,000 noninterest-bearing note with a discount rate of 8%. The $6,000 payment is due on February 28, 2019. The stock has no ready market value. |
Dec. 31 |
Required:
1. Prepare
2. Prepare any additional year-end
(1)

Receivables:
Receivables refer to an amount to be received in future. General classifications of receivables are accounts receivable, note receivable, and other receivables.
To prepare: Journal entries for each transaction.
Explanation of Solution
March 17: Write-off of account receivables:
Date | Account Title and Explanation | Post Ref | Debit ($) |
Credit ($) |
March 17, 2018 | Allowance for uncollectible accounts | 1,700 | ||
Accounts Receivable | 1,700 | |||
(To record the write-off of receivables) |
Table (1)
March 30: Receipt of Notes Receivable:
Date | Account Title and Explanation | Post Ref | Debit ($) |
Credit ($) |
March 30, 2018 | Notes Receivable | 20,000 | ||
Cash | 20,000 | |||
(To record receipt of notes receivable) |
Table (2)
May 30: Discounting of Notes Receivable:
- Accrual of Interest:
Date | Accounts title and explanation | Post Ref. | Debit ($) |
Credit ($) |
May 30, 2018 | Interest Receivable | 233 | ||
Interest revenue (1) | 233 | |||
(To record accrued interest) |
Table (3)
- To record the loss:
Date | Account Title and Explanation | Post Ref. |
Debit ($) | Credit ($) |
May 30, 2018 | Cash (5) | 19,973 | ||
Loss on Sale of Note Receivable (Refer table 5) | 260 | |||
Notes Receivable | 20,000 | |||
Interest Receivable (1) | 233 | |||
(To record the discounting of note receivable) |
Table (4)
Working note:
Compute the amount of interest accrued:
Principal = $20,000
Rate of interest = 7%
Period = 2 Months (March 30 to May 30)
Compute the amount of interest on maturity:
Principal = $20,000
Rate of interest = 7%
Period = 12 Months (March 30, 2018 to March 30, 2017)
Compute the maturity value:
Compute the amount discount on discounting the note:
Compute the amount of cash proceeds:
Compute the loss on sale of notes receivable:
Face value of Notes Receivable | $20,000 |
Add: Interest Receivable | 233 |
Less: Cash Proceeds | (19,973) |
Loss on Sale of Investments | $260 |
Table (4)
June 30: Sales:
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
June 30, 2018 | Accounts Receivable | 12,000 | ||
Sales Revenue | 12,000 | |||
(To record the sales on account) |
Table (5)
July 8: Collection from Customers:
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
July 8, 2018 | Cash (7) | 11,760 | ||
Sales Discount (6) | 240 | |||
Accounts Receivable | 12,000 | |||
(To record the sales remittance) |
Table (6)
Working note:
Compute the amount of discount:
The sale was made on June 30 and the payment is received on July 8. Hence, the customer is eligible for a sales discount of 2% (2/10 term).
Compute the amount of cash received from the customer:
August 31: Sale of Stock:
Date | Account Title and Explanation | Post Ref. |
Debit ($) | Credit ($) |
August 31, 2018 | Notes Receivable | 6,000 | ||
Discount on Note Receivable (8) | 240 | |||
Investments | 5,000 | |||
Gain on Sale of Investments | 760 | |||
(To record the exchange of notes receivable with stock) |
Table (7)
Working note:
Compute the discount on notes receivable:
Compute the gain on sale of investments:
Face value of Notes Receivable | $6,000 |
Less: Book value of investment | (5,000) |
Less: Discount on Note receivable | (240) |
Loss on Sale of Investments | $760 |
Table (8)
December 31, 2018: Bad Debts Expense:
Date | Account Title and Explanation | Post Ref | Debit ($) |
Credit ($) |
December 31, 2018 | Bad Debts Expense (9) | 14,000 | ||
Allowance for uncollectible accounts | 14,000 | |||
(To record the depreciation expense) |
Table (9)
Working note:
Compute the amount of bad debts expense:
December 31, 2018: Adjusting Entry for Interest Accrual:
Date | Accounts title and explanation | Post Ref. | Debit ($) |
Credit ($) |
December 31, 2018 | Discount on Note Receivable | 160 | ||
Interest revenue (10) | 160 | |||
(To record accrued interest) |
Table (10)
Working note:
Compute the amount of interest:
Principal = $6,000
Rate of interest = 8%
Period = 4 Months (August 31 to December 31)
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