Chapter 9, Problem 1GLP

To determine

Journal entries:

Journal entry is a practice of recording of all the financial events in a sequential order. As per this method each transaction has two sides which are debit side and credit side. Total value of debit side must be equal to the total value of credit side. It acts as a base of all the financial transactions.

1.

To prepare: Journal entry.

Explanation of Solution

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
Dec 16	Notes receivable – Danny Todd		10,800
	Accounts receivable – Danny Todd			10,800
	(To record conversion of accounts receivable into notes receivable.)

Table (1)

• Notes receivable are classified under current assets in balance sheet and debited with the conversion of accounts receivable account into notes receivable, this account will be debited.

• Accounts receivable account is classified under current assets in balance sheet and credited with the conversion of accounts receivable account into notes receivable.

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
Dec 31	Accrued interest $\left(\$10,800\times 8\%\times \frac{15}{365}\right)$		36
	Interest revenue			36
	(To record accrued interest.)

Table (2)

• Accrued interest is classified under current assets in balance sheet and debited with the increase in accrued interest account.

• Interest revenue is classified under revenue in income statement account. This account will be credited with the increase in interest revenue.

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
Feb 14	Cash		10943
	Interest revenue			107
	Interest receivable			36
	Notes receivable- D. Todd			10800
	(To record payment of principal and interest from Todd.)

Table (3)

• Cash is classified under current assets in balance sheet. With the receipt of cash, cash account will be increased and therefore will be debited.

• Interest revenue is classified under revenue in income statement account. This account will be credited with the increase in interest revenue.

• Interest receivable account is classified under current assets in balance sheet and credited with the transfer of amount to cash account as interest is received in cash.

• Notes receivable is classified under current assets account and it will be credited with the transfer of balance from notes receivable account to cash account.

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
Mar 02	Notes receivable – Midnight Co.		6,100
	Accounts receivable – Midnight Co.			6,100
	(To record conversion of accounts receivable into notes receivable.)

Table (4)

• Notes receivable are classified under current assets in balance sheet and debited with the conversion of accounts receivable account into notes receivable, this account will be debited.

• Accounts receivable account is classified under current assets in balance sheet and credited with the conversion of accounts receivable account into notes receivable.

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
Mar 17	Notes receivable – Ava Privet		2,400
	Accounts receivable – Ava Privet			2,400
	(To record conversion of accounts receivable into notes receivable.)

Table (5)

• Notes receivable are classified under current assets in balance sheet and debited with the conversion of accounts receivable account into notes receivable, this account will be debited.

• Accounts receivable account is classified under current assets in balance sheet and credited with the conversion of accounts receivable account into notes receivable.

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
April 16	Accounts receivable – Ava Privet		2,414
	Interest revenue			14
	Notes receivable- Ava Privet			2,400
	(To record Note dishonored by Privet.)

Table (6)

• Accounts receivable is classified under current asset account and this account will be debited with the increase in balance of accounts receivable.

• Interest revenue is classified under revenue in income statement account. This account will be credited with the increase in interest revenue.

• Notes receivable is classified under current assets account and it will be credited with the transfer of balance from notes receivable account to cash account.

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
May 31	Accounts receivable – Midnight Co.		6,220
	Interest revenue			120
	Notes receivable- Midnight Co.			6,100
	(To record dishonored note plus interest charged to Midnight Co’s accounts receivable..)

Table (7)

• Accounts receivable is classified under current asset account and this account will be debited with the increase in balance of accounts receivable.

• Interest revenue is classified under revenue in income statement account. This account will be credited with the increase in interest revenue.

• Notes receivable is classified under current assets account and it will be credited with the transfer of balance from notes receivable account to cash account.

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
Jul 16	Cash		6,282
	Interest revenue			62
	Accounts receivable – Midnight Co.			6,220
	(To record payment received from Midnight Co.)

Table (8)

• Cash is classified under current assets in balance sheet. With the receipt of cash, cash account will be increased and therefore will be debited.

• Interest revenue is classified under revenue in income statement account. This account will be credited with the increase in interest revenue.

• Accounts receivable account is classified under current assets in balance sheet and credited with the conversion of accounts receivable account into notes receivable.

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
Aug 7	Notes receivable – Mulan Co.		7,450
	Accounts receivable – Mulan Co.			7,450
	(To record conversion of accounts receivable into notes receivable.)

Table (9)

• Notes receivable are classified under current assets in balance sheet and debited with the conversion of accounts receivable account into notes receivable, this account will be debited.

• Accounts receivable account is classified under current assets in balance sheet and credited with the conversion of accounts receivable account into notes receivable.

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
Sep 3	Notes receivable – Noah Carson		2,100
	Accounts receivable – Noah Carson.			2,100
	(To record conversion of accounts receivable into notes receivable.)

Table (10)

• Notes receivable are classified under current assets in balance sheet and debited with the conversion of accounts receivable account into notes receivable, this account will be debited.

• Accounts receivable account is classified under current assets in balance sheet and credited with the conversion of accounts receivable account into notes receivable.

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
Nov 2	Accounts receivable – Noah Carson		2,135
	Interest revenue			35
	Notes receivable- Noah Carson.			2,100
	(To record payment received from Noah Carson.)

Table (11)

• Accounts receivable is classified under current asset account and this account will be debited with the increase in balance of accounts receivable.

• Interest revenue is classified under revenue in income statement account. This account will be credited with the increase in interest revenue.

• Notes receivable is classified under current assets account and it will be credited with the transfer of balance from notes receivable account to cash account.

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
Nov 5	Cash		7,634
	Interest revenue			184
	Notes receivable - Mulan.			7,450
	(To record payment received from Mulan.)

Table (12)

• Cash is classified under current assets in balance sheet. With the receipt of cash, cash account will be increased and therefore will be debited.

• Interest revenue is classified under revenue in income statement account. This account will be credited with the increase in interest revenue.

• Notes receivable is classified under current assets account and it will be credited with the transfer of balance from notes receivable account to cash account.

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
Dec 1	Allowances for doubtful accounts		2,414
	Accounts receivable – A Privet			2,414
	(To record Privet account written off against allowance for doubtful accounts.)

Table (13)

• Allowance for doubtful accounts is a contra asset account which represents the amount not likely to be recovered. Writing off the privet account will reduce the balance of allowance for doubtful accounts and therefore, this account will be debited.

• Accounts receivable account is classified under current assets in balance sheet and credited with the conversion of accounts receivable account into notes receivable.

2.

To determine

To identify: Reporting required when business pledges its receivables for a loan and the loan is still outstanding at the end of the period.

Explanation of Solution

• In the given case, the company is liable to disclose the fact that it has pledged its receivables for a loan which is still outstanding at the end of the period.

• As per Full Disclosure Principle of the accounting, a company is required to disclose all such information which has a significant impact on the financial statement.

• This information is necessary to protect the interest of the stake holders and to give true and fair view of the financial statement.

Hence, the company is required to disclose its information under full disclosure principle of the accounting.