P8-5A. Journal Entries for Accounts and Notes Receivable Lancaster Inc. began bu

Question

P8-5A. Journal Entries for Accounts and Notes Receivable Lancaster Inc. began business on January 1 Certain transactions for the year follow: June 8 Received a $20,000, 60 day, six percent note on account from R. Elliot Aug. 7 Received payment from R. Elliot on her note (principal plus interest). Sept. Received an $18,000, 120 day, seven percent note from B. Shore Company on account. Dec. 16 Received a $14,400, 45 day, ten percent note from C. Judd on account. 30 B. Shore Company failed to pay its note. 31 Wrote off B. Shore's account as uncollectible. Lancaster, Inc. uses the allowance method of providing for credit losses. Recorded expected credit losses for the year by an adjusting entry. Accounts written off during this first year have created a debit balance in the Allowance for Doubtful Accounts of $24,500. An analysis of aged receivables indicates that the desired balance of the allowance account should be $21,300 31 1 Made the appropriate adjusting entries for interest. Required Record the foregoing transactions and adjustments in general journal form.

Explanation / Answer

Journal enries for Accounts and Notes receivable 8-Jun Note Receivable $20,000 Accounts receivable $20,000 (to record note received from R.Elliot) 7-Aug Cash $20,200 Note receivable $20,000 Interest revenue $200 (to record payment received from R.Elliot) Note receivable $20,000 Interest @ 6% p.a. $1,200 Interest for 60 days ($1200/360 days x 60 days) $200 1-Sep Note Receivable $18,000 Accounts receivable $18,000 (to record note received from B.Shore, 120 days, 7%) 16-Dec Note Receivable $14,400 Accounts receivable $14,400 (to record note received from C.Judd, 45 days, 10%) 31-Dec Allowance for Doubtful accounts $18,420 Note Receivable $18,000 Interest receivable $420 Note receivable $18,000 Interest @ 7% p.a. $1,260 Interest for 60 days ($1260/360 days x 120 days) $420 31-Dec Bad debts expenses $45,800 Allowance for Doubtful accounts $45,800 Desired Balance of allowance account ($21,300) Credit balance Debit balance of allowance account on 31/12 $24,500 Allowance required to be created ($45,800) 31-Dec Interest receivable $60 Interest revenue $60 (to record interest on note receivable for 15 days) Note receivable $14,400 Interest @ 10% p.a. $1,440 Interest for 15 days ($1440/360 days x 15 days) $60

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