Question

James Walker owns Walker Auto Sales. He periodically borrows money from New Orleans State Bank and Trust. He permits some customers to sign short-term notes for their purchases. He usually discounts these notes at the bank. Following are selected transactions that occurred in March 2019. DATE TRANSACTIONS 2019 Mar. 4 Mr. Walker borrows $10,000 from the bank on a note payable for the business. Terms of the note are 8 percent interest for 45 days. 11 A 90-day $9,000 note payable to the bank is discounted at a rate of 10 percent. 22 Sold a car to Damon Wilson for $15,000 on a 75-day note receivable, bearing interest at 10 percent. 23 Discounted the Wilson note with the bank. The bank charges a discount rate of 12 percent. 25 Sold a car for $15,000 to Derrick Wells. Wells paid $2,000 cash and signed a 30-day note, bearing interest at 10 percent, for the balance. 28 Terry Owens's account receivable is overdue. Sims requires him to sign a 12 percent, 30-day note for the balance of $5,500. Additional Data Walker pays all the company’s notes payable on time. Damon Wilson defaults on his $15,000 note and the bank charges the company’s checking account for the maturity value of the note and a service fee of $30. Derrick Wells pays his note on time. Terry Owens pays his note on time. Required: Record each of the March transactions in the general journal. Record the additional data related to these notes for months other than March. Analyze: What is the Notes Payable account balance on March 25?

Answer 1

Journal

Date	Account Name	Debit	Credit
Mar 4	Cash	$10000
	Note payable		$10000
	(To borrow $10000 on a note payable from bank)
Mar 11	Interest expense ($9000 x 10% x 90/360)	225
	Note payable	9000
	Cash		9225
	(To record discounting of note payable)
Mar 22	Note receivable	15000
	Car		15000
	(To record sale of car on a note receivable)
Mar 23	Cash	14687.5
	Discount (15000 x 10% x 75/360)	312.5
	Note receivable		15000
	(To record discounting of a note receivable)
Mar 25	Cash	2000
	Note receivable	13000
	Car		15000
	(To record sale of car on cash and partly on Note receivable)
Mar 28	Note receivable	5500
	Accounts receivable		5500
	(To record conversion of Accounts receivable into Note receivable)

Journal for additional data

Date	Account Name	Debit	Credit
Apr 18	Interest expense ($10000 x 8% x 45/360)	100
	Note payable	10000
	Cash		10100
	(To record repayment of a 45 day note payable on time)
Jun 5	Accounts receivable - Damon Wilson	15000
	Service fee	30
	Cash		15030
	(To record dishonor of Damon's note)
Apr 24	Cash	13108
	Interest income (13000 x 10% x 30/360)		108
	Note receivable		13000
	(To record maturity of Derrick Wells note receivable)
Apr 27	Cash	5555
	Interest income (5500 x 12% x 30/360)		55
	Note receivable		5500
	(To record maturity of Terry Owens note receivable)

Notes payable account balance on Mar 25

= $10000 - $9000

= $1000