Question

Note Receivable

In the trial balance for March, you see that Notes Receivable-Fast Feet Co. has a negative balance of $105, which would seem to indicate that Fast Feet paid too much. Looking back through the journal entries for March, you find that on March 19 the accounting intern recorded receipt of $ 3,605 in payment of this note receivable. Further investigation reveals that on November 19,20 × 7, this note receivable was received from Fast Feet Co. for $ 3,500. You can find no additional information about this note in the accounting records. Assume a 360 day year.

Using the preceding information, compute the term and the interest rate of the note receivable from Fast Feet.

1. Term of the note: days

2. Interest rate of the note: %

3. Journalize the entry needed to record information about the note receivable from Fast Feet for the year 20Y7. Assume that the entry on November 19,20 Y 7 is correct. If an amount box does not require an entry, leave it blank. Round all amounts to the nearest dollar.

4. Journalize the entry needed to record collection of the note at maturity on March 19, 20Y8. Assume that the entry on November 19,20 Y 7 is correct. If an amount box does not require an entry, leave it blank. Round all amounts to the nearest dollar.

Final Questions

Fan-Tastic Sports Gear Inc. recorded $ 2,900,000 of sales last year and projects sales to increase by $ 350,000 in the current year. Last year, 70 % of sales were on account, with over 300 customer accounts. Bad debt expense was $ 26,187 .

1. Assume that Fan-Tastic Sports Gear inc. used the allowance method last year, and the allowance account at the end of the year had a debit balance of $ 2,240. The company estimated uncollectible accounts expense using the percent of credit sales method and expected 0.75 % of credit sales to be uncollectible. What is the amount of the adjusting entry to provide for doubtful accounts on December

31? Round all computations to the nearest dollar.

2. How much higher (lower) would Fan-Tastic Sports Gear inc.'s net income have been under the allowance method assumption previously shown in (1) than under the direct write-off method? (Enter 0 if there is no change.) 

Mastery Problem: Receivables

Fan-Tastic Sports Gear Inc.

You have just been hired as the accountant for Fan-Tastic Sports Gear Inc., a wholesaler of sporting goods and apparel. The previous accountant left abruptly in late December, 20 Y7, and an accounting intern has been drafting the journal entries since January. You are examining the accounting records before finalizing the journal entries for the first quarter of 20 . The following journal shows some of the accounts receivable transactions that you are reviewing.

Answer 1

A note receivable is a written promise to receive a specific amount of cash from another party on one or more future dates. This is treated as an asset by the holder of the note. Overdue accounts receivable are sometimes converted into notes receivable, thereby giving the debtor more time to pay, while also sometimes including a personal guarantee by the owner of the debtor.

Ans 1.

Term of the Note is from Nov 19, 2017 to March 19, 2018 hence the Term of the Note is 120 days

Ans 2.

Interest Rate of Note is calculated using

Interest earned = 3605-3500 = $105

Interest Earned = Principal x Interest rate x Time period

interest rate would be: 3500 (Principal)*x(Interest Rate) *120/360 (Time period days) = 105 (interest earned)

Hence the Interest Rate would be: 9.00%

Ans 3.

Dec 31 Notes receivable Dr $3,500

Accounts receivable CR $ 3,500

Ans 4:

March 31: Cash Receivable Dr $3,605

Notes Receivable Cr $3,500

Interest Income Cr $105