allowanee memou m 9-5A and ng notes transactions P3 The following selected trans

Question

allowanee memou m 9-5A and ng notes transactions P3 The following selected transactions are from Ohlm Company. 2014 Accepted a $10,800, 60-day, 8% note dated this day in granting Danny Todd a time exte on his past-due account receivable Dec. 16 0 31 Made an adjusting entry to record the accrued interest on the Todd note. 2015 Feb. 14 Received Todd's payment of principal and interest on the note dated December 16 Mar. 2 Accepted a $0.100, 8%, 90-day note dated this day in granting a time extension on the . 14, Cr nue $108 account receivable from Midnight Co. Accepted a $2,400, 30-day, 7% note dated this day in granting Ava Privet a time extension 17 her past-due account receivable. Privet dishonored her note when presented for payment. Midnight Co. refuses to pay the note that was due to Ohlm Co. on May 31. Prepare journal entry to charge the dishonored note plus accrued interest to Midnight Co.'s accou Apr. 16 May 31 31, Cr, Interest nts receivable. dishonored note plus interest July 16 Received payment from Midnight Co. for the maturity value of its Aug. 7 Accepted a $7,450, 90- Sept. 3 Accepted a S2 100 60-day 10% note dated this day in granting Noah Carson a time extension for 46 days beyond maturity at 8%. day, 10% note dated this day in granting a time extension on the past-due account receivable of Mulan Co. on his past-due account receivable. Nov. 2 Received payment of principal plus interest from Carson for the September 3 note Nov. 5 Received payment of principal plus interest from Mulan for the August 7 note. Dec. 1 Wrote off the Privet account against Allowance for Doubtful Accounts Required 1. Prepare journal entries to record these transactions and events. (Round amounts to the nearest dollar Analysis Component 2. What reporting is necessary when a business pledges receivables as security for a loan and the loan still outstanding at the end of the period? Explain the reason for this requirement and the accounti principle being satisfied.

Explanation / Answer

PART-1)

PART-2)

When a company pledges its receivables as security for a loan and if the loan is still outstanding at period-end, then the company is required to disclose requisite information in notes to its financial statements. It is mandatory because the company has committed a portion of its assets to cover a certain portion of its liabilities, thus even if the business dishonors its obligations under the loan, the creditor is in a position to claim the receivable amount as reflected in the pledge as collateral to cover the loan. Thus the arrangement need to be disclosed to satisfy the full-disclosure principle.

2014     Dec. 16 Dr. Notes Receivable—D. Todd $10,800 Cr. Accounts Receivable—D. Todd $10,800     31 Dr. Interest Receivable $36 Cr. Interest Revenue $36    [$10,800 * .08 * 15/360 = $36].         2015     Feb. 14 Dr. Cash $10,944 Cr. Interest Revenue* $108 Cr. Interest Receivable $36 Cr. Notes Receivable—D. Todd $10,800    [$10,800 * 0.08 * 45/360 = $108]         Mar.   2 Dr. Notes Receivable—Midnight Co $6,100 Cr. Accounts Receivable—Midnight Co. $6,100     17 Dr. Notes Receivable—A. Privet $2,400 Cr. Accounts Receivable—A. Privet $2,400         Apr. 16 Dr. Accounts Receivable—A. Privet $2,414 Cr. Interest Revenue $14 Cr. Notes Receivable—A. Privet $2,400 ($2,400 * .07 * 30/360= $14)         May-31 Dr. Accounts Receivable—Midnight Co. $6,220 Cr. Interest Revenue* $120 Cr. Notes Receivable—Midnight Co $6,100 ($6,100 * 0.08 * 88/360 = $120    Jul-16 Dr. Cash $6,285 Cr. Interest Revenue* $65 Cr. Accounts Receivable—Midnight Co. $6,220 *($6,222 * .08 * 47/360= $65 )         Aug. 7 Dr. Notes Receivable—Mulan $7,450 Cr. Accounts Receivable—Mulan $7,450     Sept. 3 Dr. Notes Receivable—N. Carson $2,100 Cr. Accounts Receivable—N. Carson $2,100     Nov. 2 Dr. Cash $2,135 Cr. Interest Revenue* $35 Cr. Notes Receivable—N. Carson $2,100 ($2,100 * .10 * 60/360 = $35).         5 Dr. Cash $7,636 Cr. Interest Revenue* $186 Cr. Notes Receivable—Mulan $7,450 ($7,450 * .10 * 90/360 = $186)         Dec. 1 Dr. Allowance for Doubtful Accounts $2,414 Cr. Accounts Receivable—A. Privet $2,414

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

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