Chapter 8, Problem 8.6AP

To determine

Accounts receivable:

Accounts receivable refers to the amounts to be received within a short period from customers upon the sale of goods, and services on account. In other words, accounts receivable are amounts customers owe to the business. Accounts receivable is an asset of a business.

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 the lender or creditor. Notes receivable is an asset of a business.

To prepare:  The journal entry in the books of Company H for the transaction made on January 5, 2017.

Answer to Problem 8.6AP

Prepare journal entry in the books of Company H to record its sale of merchandise on January 5, 2017.

Date	Account Title and Explanation	Debit	Credit
January 5, 2017	Accounts receivable – Company R	$4,000
	Sales revenue		$4,000
	(To record the sales on account, terms n/30)

Explanation of Solution

$4,000 sale on account increases accounts receivable and sales revenue, as sale of merchandise were made under the term n/30. Hence,

• An increase in accounts receivable (asset account) is debited with $4,000 and;
• An increase in sales revenue (stockholders’ equity account) is credited with $4,000.

To determine

To prepare:  The journal entry in the books of Company H for the transaction made on February 2, 2017.

Answer to Problem 8.6AP

Prepare journal entry in the books of Company H to record the acceptance of note from Company R for the balance due on February 2, 2017.

Date	Account Title and Explanation	Debit	Credit
February 2, 2017	Notes receivable	$4,000
	Accounts receivable – Company R		$4,000
	(To record the acceptance of note from Company R for balance due)

Explanation of Solution

Company H accepted note for balance due of $4,000 from Company R. To record this acceptance of note, accounts receivable have to be replaced by notes receivable. So, notes receivable has to be increased and accounts receivable has to be decreased by $4,000. Hence,

• An increase in notes receivable (asset account) is debited with $4,000, and;
• A decrease in accounts receivable (asset account) is credited with $4,000.

To determine

To prepare:  The journal entry in the books of Company H for the transaction made on February 12, 2017.

Answer to Problem 8.6AP

Prepare journal entry in the books of Company H to record its sale of merchandise on February 12, 2017.

Date	Account Title and Explanation	Debit	Credit
February 12, 2017	Notes receivable – Company C	$12,000
	Sales revenue		$12,000
	(To record the sales of merchandise on note)

Explanation of Solution

$12,000 sale of merchandise and acceptance of note from Company C increases notes receivable and sales revenue, as sale of merchandise were made by accepting promissory note. Hence,

• An increase in notes receivable (asset account) is debited with $12,000 and
• An increase in sales revenue (stockholders’ equity account) is credited with $12,000.

To determine

To prepare:  The journal entry in the books of Company H for the transaction made on February 26, 2017.

Answer to Problem 8.6AP

Prepare journal entry in the books of Company H to record its sale of merchandise on February 26, 2017.

Date	Account Title and Explanation	Debit	Credit
February 26, 2017	Accounts receivable – Company M	$5,200
	Sales revenue		$5,200
	(To record the sales on account, terms n/10)

Explanation of Solution

$5,200 sale on account increases accounts receivable and sales revenue, as sale of merchandise were made under the term n/10. Hence,

• An increase in accounts receivable (asset account) is debited with $5,200 and
• An increase in sales revenue (stockholders’ equity account) is credited with $5,200.

To determine

To prepare:  The journal entry in the books of Company H for the transaction made on April 5, 2017.

Answer to Problem 8.6AP

Prepare journal entry in the books of Company H to record the acceptance of note from Company M for the balance due on April 5, 2017.

Date	Account Title and Explanation	Debit	Credit
April 5, 2017	Notes receivable	$5,200
	Accounts receivable – Company M		$5,200
	(To record the acceptance of note from Company M for balance due)

Explanation of Solution

Company H accepted note for balance due of $5,200 from Company M. To record this acceptance of note, accounts receivable have to be replaced by notes receivable. So, notes receivable has to be increased and accounts receivable has to be decreased by $5,200. Hence,

• An increase in notes receivable (asset account) is debited with $5,200, and
• A decrease in accounts receivable (asset account) is credited with $5,200.

To determine

To prepare:  The journal entry in the books of Company H for the transaction made on April 12, 2017.

Answer to Problem 8.6AP

Prepare journal entry in the books of Company H to record the collection of cash on note in full from Company C, on April 12, 2017.

Date	Account Title and Explanation	Debit	Credit
April 12, 2017	Cash	$12,200
	Notes receivable – Company C		$12,000
	Interest revenue (1)		$200
	(To record the collection of cash on note in full from Company C)

Working note:

Calculate the amount of interest revenue.

$\begin{array}{c}\text{Interest Revenue = }\left[\begin{array}{l}\text{Notes Receivable×Interest percentage×}\\ \text{Time in terms of one year}\end{array}\right]\\ \text{= \$12,000×}\frac{\text{10}}{\text{100}}\text{×}\frac{\text{2 months}}{\text{12 months in a year}}\\ \text{=\$200}\end{array}$ (1)

Explanation of Solution

On April 12, 2017, Company H collected cash on note along with interest of $200 from Company C. Collection of cash and interest increases cash, interest revenue, and decreases notes receivable. Hence,

• An increase in cash (asset account) is debited with $12,200,
• A decrease in notes receivable (asset account) is credited with $12,000, and
• An increase in interest revenue (stockholders’ equity account) is credited with $200.

To determine

To prepare:  The journal entry in the books of Company H for the transaction made on June 2, 2017.

Answer to Problem 8.6AP

Prepare journal entry in the books of Company H to record the collection of cash on note in full from Company R on June 2, 2017.

Date	Account Title and Explanation	Debit	Credit
June 2, 2017	Cash	$4,120
	Notes receivable – Company C		$4,000
	Interest revenue (2)		$120
	(To record the collection of cash on note in full from Company R)

Working note:

Calculate the amount of interest revenue.

$\begin{array}{c}\text{Interest Revenue = }\left[\begin{array}{l}\text{Notes Receivable×Interest percentage×}\\ \text{Time in terms of one year}\end{array}\right]\\ \text{= \$4,000×}\frac{9}{\text{100}}\text{×}\frac{\text{4 months}}{\text{12 months in a year}}\\ \text{=\$120}\end{array}$ (2)

Explanation of Solution

On June 2, 2017, Company H collected cash on note along with interest of $200 from Company R. Collection of cash and interest increases cash, interest revenue and decreases notes receivable. Hence,

• An increase in cash (asset account) is debited with $4,120,
• A decrease in notes receivable (asset account) is credited with $4,000, and
• An increase in interest revenue (stockholders’ equity account) is credited with $120.

To determine

To prepare:  The journal entry in the books of Company H for the transaction made on June 15, 2017.

Answer to Problem 8.6AP

Prepare journal entry in the books of Company H to record its sale of merchandise on February 12, 2017.

Date	Account Title and Explanation	Debit	Credit
June 15, 2017	Notes receivable – Incorporation G	$2,000
	Sales revenue		$2,000
	(To record the sales of merchandise on note)

Explanation of Solution

$2,000 sale of merchandise and acceptance of note from Incorporation G increases notes receivable and sales revenue, as sale of merchandise were made by accepting promissory note. Hence,

• An increase in notes receivable (asset account) is debited with $2,000 and;
• An increase in sales revenue (stockholders’ equity account) is credited with $2,000.