Question

Hogwarts Ltd. sold merchandise for $6,000 to H. Potter on July 31, 2019, with payment due in 30 days. Because of CoVid-19 pandemic, Potter experienced cash-flow problems and was unable to pay its debt. On December 24, 2019, Hogwarts stopped trying to collect the outstanding receivable from Potter and wrote off the account as uncollectible. On January 15, 2020, Potter sent Hogwarts a check for $1,500 and offered to sign a two-month, 8%, $4,500 promissory note to satisfy the remaining obligation. Potter paid the entire amount due Hogwarts, with interest, on March 15, 2020. Hogwarts ends its accounting year on December 31 each year.

Required:

1. Prepare all of the necessary journal entries on the books of Hogwarts Ltd., from 31 Juli 2019, to March 15, 2020.

2. Why would Potter bother to send Hogwarts a check for $1,500 on January 15 and agree to sign a note for a balance, given that such a long period of time had passed since the original purchase?

Answer 1

1) Journal Entries
Date	Account Titles and Explanations	Debit	Credit
Jul. 31, 2019	Accounts Receivable	$6,000
	Sales Revenue		$6,000
	(To record the sales made on account )
Dec. 24, 2019	Allowance for Uncollectible Accounts	$6,000
	Accounts Receivable		$6,000
	(To record the written off of accounts receivable)
Jan. 15, 2020	Accounts Receivable	$6,000
	Allowance for Uncollectible Accounts		$6,000
	(To record reinstate of accounts receivable)
Jan. 15, 2020	Cash	$1,500
	Notes Receivable	$4,500
	Accounts Receivable		$6,000
	(To record the receipt of cash and 8% note in return of the accounts receivable
Mar. 15, 2020	Cash ($4,500 + $60)	$4,560
	Notes Receivable		$4,500
	Interest Revenue ($4,500*8/100*2/12 months)		$60
	(To record the collection of amount on the note along with interest)
2) It may be due to CoVid-19 where the virus can even pass through the Check or the 8% note which is stated on the paper or other material and also H. Potter has some cash-flows problems as well so he took such a long period after the decrease of the CoVid-19 virus.