Question

Transactions for the year 2019 are summarized as follows:

1. Sold merchandise on credit in the amount of $325,000, terms 2/10, N30. The cost of the merchandise sold was $195,500.

2. Collected accounts receivable in the amount of $ 278,950, minus discounts of $ 3,000.

3. Wrote off an uncollectible account in the amount of $2,600.00.

4. Accepted a 60-day, 8 % note receivable in the amount $12,500.00 from a credit customer, in exchange for an extension on a customer’s overdue account receivable. The issue date of the note was December 10, 2019

Part A

1. Prepare General Journal entries to record the 2019 transactions of Sterling Company           (11)

2. Post your journal entries to the GL (GL pages below) and calculate the unadjusted balances at December 31, 2019 for Accounts Receivable and Allowance for Doubtful Accounts (AFDA).  

(Don’t forget the extension of the overdue account receivable.)                                              (5)

3. Prepare the year end adjusting entry for Bad Debt Expense using the balance sheet approach.   Sterling estimates Bad Debt Expense at 2 % of year end 2019 Accounts Receivable.     (3)

Prepare the year end adjusting entry for interest earned on the Note Receivable

Answer 1

	Part A : Journal Entries
a	Accounts	Dr $	Cr$	Remarks
	Accounts Receivable	$         325,000		Sales Transaction recorded
	Sales revenue		$                 325,000
	Finished Goods		$                 195,500	Recording of movement of FG
	Cost of Goods Sold	$         195,500		Recording of COGS
b	Accounts Receivable		$                 278,950	Collection of AR less Sales discount
	Sales Discount	$              3,000
	Cash	$         275,950
c	Allowance for Doubtful Accounts		$                      2,600	Writing off uncollectible Amount
	Bad Debt Expense	$              2,600
d	Accounts Receivable		$                    12,500	Conversion of AR to Notes Receivable
	Notes Receivable	$           12,500

	GL Account
	Accounts Reecivable	Dr $	Cr $
a	Sales Transaction	$         325,000
b	Collection		$                 278,950
d	Notes Receivable received		$                    12,500
	Unadjusted balance as on Dec 31 2019	$           33,550
	GL Account
	Allowance for Doubtful debt	Dr $	Cr $
c	Wrtitng off uncollectible amount		$                      2,600
	Unadjusted balance as on Dec 31 2019		$                      2,600

Bad debt Provisiom
Unadjusted balance as on Dec 31 2019	$           33,550
Bad debt provision required @2% of AR balance	$                 671

Jurnal entry for Bad debt provision
We do not know the op balance of AFDA a/c , so simply entering the JE based on above calculation
Accounts	Dr $	Cr$	Remarks
Allowance for Doubtful Accounts	$                 671		Taking provision for Bad debt @2% of AR Balance
Accounts Receivable		$                         671

Note Received Interest Calc
Note Date =Dec 10 2019
Days till Dec 31 2019 =21
Interest rate 8%
Note Amount $12500
Interest accrued for 21 days =12500*21/365*8%=	$                   58

Adjusting entry for Interest
Accounts	Dr $	Cr$	Remarks
Accrued Interest Income	$                   58		Accrual of 21 days income on Notes Receivable
Interest Income		$                           58