Question

Exercise 7-28 (Algo) Receivables; transaction analysis [LO7-3, 7-5, 7-6, 7-7, 7-8]

Weldon Corporation’s fiscal year ends December 31. The following is a list of transactions involving receivables that occurred during 2021:

Mar.		17		Accounts receivable of $3,100 were written off as uncollectible. The company uses the allowance method.
		30		Loaned an officer of the company $39,000 and received a note requiring principal and interest at 8% to be paid on March 30, 2022.
May		30		Discounted the $39,000 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 $26,000. 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 $6,400 and accepted a $7,400 noninterest-bearing note with a discount rate of 9%. The $7,400 payment is due on February 28, 2022. The stock has no ready market value.
Dec.		31		Weldon estimates that the allowance for uncollectible accounts should have a balance in it at year-end equal to 3% of the gross accounts receivable balance of $930,000. The allowance had a balance of $26,000 at the start of 2021.

• 1

  Accounts receivable of $3,100 were written off as uncollectible. The company uses the allowance method.

• 2

  Loaned an officer of the company $39,000 and received a note requiring principal and interest at 8% to be paid on March 30, 2022.

• 3

  Record the accrued interest revenue on the discounted note.

• 4

  Record the cash received on the discounted note.

• 5

  Sold merchandise to the Blankenship Company for $26,000. Terms of the sale are 3/10, n/30. Weldon uses the gross method to account for cash discounts.

• 6

  The Blankenship Company paid its account in full.

• 7

  Sold stock with a book value of $6,400 and accepted a $7,400 noninterest-bearing note with a discount rate of 9% due on February 28, 2022.

• 8

  To record the accrual of interest earned on note receivable.

• 9

  To record the accrual of bad debt expense.

Answer 1

Journal Entries:

No	Date	General Journal	Debit	Credit
1)	Mar. 17, 2021	Allowance for Uncollectible Accounts	$3,100
		Accounts Receivable		$3,100
		(To record the written off as uncollectible)
2)	Mar. 30, 2021	Note Receivable	$39,000
		Cash		$39,000
		(To record the issue of 8% notes receivable)
3)	May. 30, 2021	Interest Receivable	$520
		Interest Revenue ($39,000*8/100*2/12 months)		$520
		(To record the interest earned on the note)
4)	May. 30, 2021	Cash ($39,000 + $520 - $2,964)	$36,556
		Loss on sale of note ($39,520*9/100*10/12 months)	$2,964
		Interest Receivable		$520
		Note Receiable		$39,000
		(To record the note discounted)
5)	Jun. 30, 2021	Accounts Receivable	$26,000
		Sales Revenue		$26,000
		(To record the sales made on account)
6)	Jul. 8, 2021	Cash ($26,000 - $780)	$25,220
		Sales Discounts ($26,000*3/100)	$780
		Accounts Receivable		$26,000
		(To record the collection made for the credit sales)
7)	Aug. 31, 2021	Notes Receivable	$7,400
		Discount on notes receivable ($7,400*9/100*6/12)	$333
		Investments in Stock		$6,400
		Gain on sale of investments in stock ($7,400 + $333 - $6,400)		$1,333
		(To record the sales of investments in stock for issuing a note)
8)	Dec. 31, 2021	Bad Debts Expense ($930,000*3/100)	$27,900
		Allowance for Doubtful Accounts		$27,900
		(To record estimation of 3% of bad debts)
9)	Dec. 31, 2021	Discount on notes receivable ($7,400*9/100*4/12)	$222
		Interest Revenue		$222
		(To record the discount on note)