Cash and Receivable. 1) Rugby Panthers company on January 1, 2017 loaned $25,720

Question

Cash and Receivable.

1) Rugby Panthers company on January 1, 2017 loaned $25,720 to Minot high magicians company. Rugby panthers company accepted a 2 year $30,000 note from Minot high magicians company. Record the entry on January 1, 2017 for the initial transaction, record the adjusting entry on December 31, 2017, record the adjusting entry on December 31, 2018, and the entry on January 1, 2019( The date the note is collected?. You will need to compute the implied interest rate. Record entries only from the point of Rugby Panthers company.

2) Briefly discuss the two methods of recording accounts receivable when cash discounts are invloved.

Explanation / Answer

Answer 1. PV of Note                25,720 n = 2 Years i = 8% Note Value                30,000 PV annuity = $25,720 / 30,000 = 9.818147 Finding the PV annuity in the PV of Annuity factors where n = 2, i = 8% (approx.). Amortization Schedule A B C D E Annual Interest Period Interest Received Interest Revenue - Preceeding Bond Carrying Value X 8% Discount Amortization (B - A) Unamortized Discount (D - C) Bonds Carrying Amount ($30,000 - D) 0                          -                                           -                                              -                         4,280                            25,720 1                          -                                    2,058                                     2,058                       2,222                            27,778 2                          -                                    2,222                                     2,222                               0                            30,000 Journal Entry Date Particulars Dr. Amt. Cr. Amt. 1-Jan-17 Notes receivable                                      Dr.          30,000    To Cash          25,720    To Discount on Issue of Note            4,280 (record the issue of note) 31-Dec-17 Discount on Issue of Note                     Dr.            2,058    To Interest Revenue            2,058 (Record the Interest earned on Note) 31-Dec-18 Discount on Issue of Note                     Dr.            2,058    To Interest Revenue            2,058 (Record the Interest earned on Note) 31-Dec-18 Cash                                                               Dr.          30,000    To Note Receivable          30,000 (record the Cash received) Answer 2. Two methods for recording accounts receivable when cash discount are involved are: 1. Gross Method 2. Net Method 1. Gross Method - In this method sales are recorded at gross value (without deducting the discount offered) The Journal Entry to be passed at the time of Sale: Accounts Receivable                                Dr. XXX    To Sales XXX The Journal Entry to be passed at the time of cash received from debtor within the discount time period: Cash                                                                 Dr. XXX Sales Discounts                                           Dr.       X    To Accounts Receivable XXX 2. Net Method - In this method, sales are recorded at net amount (i.e Sales Value - Discount). In this method, we assume that the debtor will pay the amount within the discount period The Journal Entry to be passed at the time of Sale: Accounts Receivable                                Dr. XXX    To Sales (Net Amount) XXX

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.