Question

Recording Notes Receivable: Issuance, Payment, and Default

Marydale Products permits its customers to defer payment by giving personal notes instead of cash. All the notes bear interest and require the customer to pay the entire note in a single payment 6 months after issuance. Consider the following transactions, which describe Marydale's experience with two such notes:

1. On October 31, 2019, Marydale accepts a 6-month, 9% note from Customer A in lieu of a $3,600 cash payment for services provided that day.
2. On February 28, 2020, Marydale accepts a 6-month, $2,400, 7% note from Customer B in lieu of a $2,400 cash payment for services provided on that day.
3. On April 30, 2020, Customer A pays the entire note plus interest in cash.
4. On August 31, 2020, Customer B pays the entire note plus interest in cash.

Required:

Prepare the necessary journal and adjusting entries required to record Transactions a through d in Marydale's records. For a compound transaction, if an amount box does not require an entry, leave it blank.

Answer 1

Recording Notes Receivable Transactions

Customers frequently sign promissory notes to settle overdue accounts receivable balances. For example, if a customer named D. Brown signs a six‐month, 10%, $2,500 promissory note after falling 90 days past due on her account, the business records the event by debiting notes receivable for $2,500 and crediting accounts receivable from D. Brown for $2,500. Notice that the entry does not include interest revenue, which is not recorded until it is earned.