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: On October 31, 2019 Marydale accepts a 6-month, 12% note from Customer A in lieu of a $3,600 cash payment for merchandise delivered on that day. On February 28, 2020 Marydale accepts a 6-month, $2,100, 12% note from Customer B in lieu of a $2,100 cash payment for merchandise delivered on that day. On April 30, 2020 Customer A pays the entire note plus interest in cash. 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. a. Oct. 31, 2019 Record sale Dec. 31, 2019 Record accrued interest income b. Feb. 28, 2020 Record sale c. Apr. 30, 2020 Record collection of note receivable d. Aug. 31, 2020 Record collection of note receivable

Answer 1

Marydale Products

Journal entries and adjusting entries –

Date	Account Titles and Explanation	Ref. Post	Debit	Credit
a.
31-Oct-19	Notes Receivable		$3,600
	Sales			$3,600
	(To record sale)
31-Dec-19	Interest Receivable		$72
	Interest Income			$72
	(To record accrued interest on note; 3,600 x 12% x 2/12 = $72)
b.
28-Feb-20	Notes Receivable		$2,100
	Sales			$2,100
	(To record sale)
c.
30-Apr-20	Cash		$3,816
	Notes Receivable			$3,600
	Interest Receivable			$72
	Interest Income			$144
	(To record collection of note receivable)
d.
31-Aug-20	Cash		$2,226
	Notes Receivable			$2,100
	Interest Income			$126
	(To record collection of note receivable)

Computations of interest receivable and interest income:

Interest receivable on Dec 31, 2019 –

Interest due for two months, Nov and Dec –

= 3,600 x 12% x 2/12 = $72

Interest income on April 30, 2020 –

= 3,600 x 12% x 4/12 = $144

Interest income on Aug 31, 2020 –

= 2,100 x 12% x 6/12 = $126