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In: Accounting

On 1 September 2019, Mike Co. signed a 12% six-month note receivable in settlement of accounts...

On 1 September 2019, Mike Co. signed a 12% six-month note receivable in settlement of accounts receivable of €320,000. The note and interest are all due at maturity.

  1. Prepare the entry on 1 September 2019 made by Mike Co. to record the receipt of this note receivable. (5 points)
  2. Prepare the 31 December 2018 (fiscal year-end), adjusting entry made by Mike Co. with regard to this note receivable. (5 points)
  3. Prepare the entry made by Mike Co. on 1 March 2020 (maturity date of note), to record collection of note and interest. (5 points)
  4. Assume that on 1 March 2020, the maker of the note defaults and Mike Co. does not collect the note and interest. Explain what Mike Co. would do in accounting records in this situation. (5 points)

General Journal

Date

Account Titles and Explanation

Debit

Credit

(a)

           

(b)

(c)

Solutions

Expert Solution

Journal
No Date Accounts Title and Explanation Debit Credit
a 01-09-19 Accounts Receivable        320,000
Notes Receivable      320,000
(being accounts receivable settled by signing a note)
b 31-12-19 Interest Receivable          12,800
Interest Revenue*        12,800
(being accrual of Interst)
c 01-03-20 Cash        339,200
Note Receivable      320,000
Interest Revenue*          6,400
Interest Receivable        12,800
(being receipt of note with interest)
d 01-03-20 Accounts Receivable/Allowence for Bad debt/Bad debt        320,000
Interest Revenue          19,200
Interest Receivale        19,200
Notes Receivable      320,000

*Interest till 31-12-2019 = 320000x12%x4months/12months = 12,800

*Interest till 01-03-2020 = 320000x12%x2/12 = 6,400

in b part I assumed that the date in questin were wrong because in question date is 31-12-2018 and i assumed it is 31-12-2019

In d part it can be revise to accounts receivable if the amunt can be recoverable or it can be treated as bad debt

ekkarill92 answered 4 months ago
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