Question

Weldon Corporation’s fiscal year ends December 31. The following is a list of transactions involving receivables that occurred during 2018:

Mar. 17 Accounts receivable of $2,200 were written off as uncollectible. The company uses the allowance method.

30 Loaned an officer of the company $27,000 and received a note requiring principal and interest at 8% to be paid on March 30, 2019.

May 30 Discounted the $27,000 note at a local bank. The bank’s discount rate is 9%. The note was discounted without recourse and the sale criteria are met. June 30 Sold merchandise to the Blankenship Company for $17,000. Terms of the sale are 3/10, n/30. Weldon uses the gross method to account for cash discounts.

July 8 The Blankenship Company paid its account in full.

Aug. 31 Sold stock in a nonpublic company with a book value of $5,500 and accepted a $7,000 noninterest-bearing note with a discount rate of 9%. The $7,000 payment is due on February 28, 2019. The stock has no ready market value.

Dec. 31 Bad debt expense is estimated to be 1% of credit sales for the year. Credit sales for 2018 were $750,000. 


Required: 1 & 2. Prepare journal entries for each of the above transactions and additional year-end adjusting entries indicated.

Answer 1

Solution:-

Journal Entries

1. March 17 - Accounts Receivable of $2,200 were written off as uncollectible. The company uses the allowances method.

Allowance for uncollectible amounts $2200

Accounts Receivable $2200

March 30 - Loaned an officer of the company $27,000 and received a note requiring principal and interest at 8% to be paid on March 30, 2019

Notes Receivable $27,000

Cash $27,000

May 30 - sold merchandise to the blacken ship company for $17,000. Terms of the sale are 3/30, n/30. Weldon uses the gross method to account for cash discounts.

Accounts Receivable $17,000

Cash $17,000

July 8 - The Blankenship company paid it's account in full

Cash Account (17,000 × 97%) $16490

Sales discount (17000 × 3%) $ 510

Account Receivable $17000

August 31 - Sold stock in a non-public company with a book value of $5,500 and accepted a $7000 non-interest bearing note with a discount rate of 9%. The $7,000 payment is due on February 28, 2019. The stock has no ready market value.

Notes Receivable (face amont) $7000

Discounts on notes Receivable $1185

Investment in book value $5500

Gain on sale of investments $315

PV (FV = $7000, pmt= 0, n = 6/12, I = 9%)

Dec 31 - Bad debt expense is estimated to be 1% of credit sales for the year. Credit sales for 2018 were $ 750,000

Bad debt expense ($750,000 × 1%) $7500

Allowance for uncollectible amounts $7500

Adjusting entries:-

*** To accrue interest earned on notes Receivable from loan to officer

Interest Receivable $1620

Interest Revenue ( $27,000 × 8% × 9/12) $1620

*** To accrue interest earned on notes Receivable from sale of stock

Discount on notes Receivable $159

Interest Revenue (5315 × 9% ×4/12) $159