Question

Notes Receivable Discounting

Marienau Suppliers had the following transactions:

Mar. 1	Sold merchandise on account to G. Perez, $4,700.
20	G. Perez gave a $4,700, 90-day, 6% note to extend time for payment.
30	G. Perez's note is discounted at Commerce Bank at a discount rate of 8%.
Apr. 20	Received a $3,400, 60-day, 6% note from D. Larson in payment for sale of merchandise.
May 5	D. Larson's note is discounted at Commerce Bank at a discount rate of 7%.
June 19	D. Larson's note is dishonored. The bank bills Marienau for the maturity value of the note plus a $40 bank fee.
July 31	D. Larson's dishonored note is collected; Larson pays Marienau the maturity value of the note, the $40 bank fee, and interest at 6% on the maturity value plus the bank fee.
Aug. 1	Sold merchandise on account to A. Bauer, $5,800.
12	A. Bauer paid $500 and gave a $5,300, 30-day, 5% note to extend time for payment.
Sept. 11	A. Bauer paid $300, plus interest, and gave a new $5,000, 60-day, 6% note to extend time for payment.
26	A. Bauer's note is discounted at Commerce Bank at a discount rate of 7.5%.
Nov. 10	A. Bauer's note is dishonored. The bank bills Marienau for the maturity value of the note plus a $40 bank fee.
Dec. 15	A. Bauer's dishonored note is collected. Bauer pays Marienau the maturity value of the note, the $40 bank fee, and interest at 6% on the maturity value plus the bank fee.

Required:

Record the transactions in a general journal. Assume 360 days in a year.

Answer 1

Journal Entries
Date	Account Titles and Explanation	Debit	Credit
Mar. 1	Accounts Receivable	$4,700
	Sales Revenue		$4,700
	(To record the sales made on account)
Mar. 20	Notes Receivable	$4,700
	Accounts Receivable		$4,700
	(To record the receipt of 6% note in exchange for accounts receivable)
Mar. 30	Cash ($4,700 - $376)	$4,324
	Interest Expense ($4,700*8/100)	$376
	Notes Receivable		$4,700
	(To record the discount of the note at 8%)
Apr. 20	Notes Receivable	$3,400
	Sales Revenue		$3,400
	(To record the sales made on receipt of 6% note)
May. 5	Cash ($3,400 - $238)	$3,162
	Interest Expense ($3,400*7/100)	$238
	Notes Receivable		$3,400
	(To record the discount of the note at 7%)
Jun. 19	Notes Receivable	$3,400
	Bank Fees	$40
	Cash ($3,400 + $40)		$3,440
	(To record the dishonor of note with bank)
Jul. 31	Cash ($40 + $204 + $3,400)	$3,644
	Bank Fees		$40
	Interest Revenue ($3,400*6/100)		$204
	Notes Receivable		$3,400
	(To record the collection of note along with bank fee and interest)
Aug. 1	Accounts Receivable	$5,800
	Sales Revenue		$5,800
	(To record the sales made on account)
Aug. 12	Cash	$500
	Notes Receivable	$5,300
	Accounts Receivable		$5,800
	(To record the receipt of 5% note and cash for remaining balance)
Sept. 11	Cash ($300 + $22)	$322
	Notes Receivable	$5,000
	Notes Receivable		$5,300
	Interest Revenue ($5,300*5/100*30/360 days)		$22
	(To record the exchange of 5% note with 6% note along with interest and cash)
Sept. 26	Cash ($5,000 - $375)	$4,625
	Interest Expense ($5,000*7.5/100)	$375
	Notes Receivable		$5,000
	(To record the dishonor of note with bank)
Nov. 10	Notes Receivable	$5,000
	Bank Fees	$40
	Cash ($3,400 + $40)		$5,040
	(To record the dishonor of note with bank)
Dec. 15	Cash ($40 + $300 + $5,000)	$5,340
	Bank Fees		$40
	Interest Revenue ($5,000*6/100)		$300
	Notes Receivable		$5,000
	(To record the collection of note along with bank fee and interest)