On September 1, 20X4. Happy Harvest, Inc. loaned $14,000 at 6% for 5 months to a
ID: 2464345 • Letter: O
Question
On September 1, 20X4. Happy Harvest, Inc. loaned $14,000 at 6% for 5 months to a customer. Record the issuance of the note for the cash given, showing journal entry. Calculate the interest earned each month on the note, showing calculations. Record the journal entry each month September through December 31, for the accrual of interest. (Four journal entries total) Record the payment of the Note Receivable, Interest Receivable, and Interest Revenue on January 31, 20X5. Happy Harvest, Inc. has the following results for the period: Accounts Receivable: $21,456 debit balance Net credit sales: $35,000 Estimated rate of uncollectible accounts: 3% Allowance for doubtful accounts: $185 credit beginning balance An aging of the accounts receivable reveals that an estimated $1,500 will be uncollectable. Required: Record the journal entries for Happy Harvest's bad debt expense using the percentage of credit sales and the aging of accounts receivable methods. What amount of Accounts Receivable (net) is shown on the Balance Sheet when using the percentage of credit sales method? When using the aging of accounts receivable method? Which method of calculating bad-debt expense takes the beginning balance of the Allowance for Doubtful Accounts into consideration?Explanation / Answer
1
a) Notes Receivable 14,000
Cash 14,000
b) Interest earned each month on the note = (14,000 x 6%)/12 = $70
c) Sep 30
Interest on Notes Receivable 70
Interest Revenue 70
Oct 31
Interest on Notes Receivable 70
Interest Revenue 70
Nov 30
Interest on Notes Receivable 70
Interest Revenue 70
Dec 31
Interest on Notes Receivable 70
Interest Revenue 70
d) Jan 31
Cash 14,350
Notes Receivable 14,070
Interest on Notes Receivable 280
2 A) Bad Debt Expense % = 1500/35000 = 4.29%
= 21,456 x 4.29% = $920.4
Bad Debt Expense 920.4
Allowance for Doubtful Accounts 920.4
B) Balance Sheet
Percentage of Credit Sales
Accounts Receivable (Net) ; (21,456 - 920.4) = 20,535.6
Aging of Accounts Receivable Method
Accounts Receivable (Net) ; (21,456 - 1,500) = $ 19,956
3 Allowance Method
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