Question

18.9B (LO 1, 3) AP On January 2, 2021, Durand Co. had a $20,000, five-month, Vincent Company dated October 31, 2020. Interest rece a Co. had a $20,000, five-month, 6% note receivable from ber 31, 2020. Interest on the note is due at maturity. DU tober 31, 2020. Interest receivable of $200 was accrued on the note on Decem- ne note is due at maturity. Durand Co. has a December 31 fiscal year end and accounts annually. In 2021, the following selected transactions occurred Jan. 2 Sold $25,000 of merchandise costing $13,750 to Braun Company, len 3 $13,750 to Braun Company, terms 2/10, n/30. Durand Co. uses the perpetual inventory system. Feb. 1 braun Company's $25,000, three-month. 6% note for the balance due. See January 2 transaction.) Interest is due at maturity. Mar. 31 Received payment in full from Vincent Company for the amount due. vay Collected Braun Company note in full. (See February 1 transaction.) 25 Accepted Noah Inc.'s $12.000. two-month. 6% note in settlement of a past-due balance on account. Interest is payable monthly. June 25 Received one month's interest from Noah Inc. on its note. (See May 25 transaction.) July 25 The Noah Inc. note was dishonoured. (See May 25 transaction.) Future payment is not expected. Nov. 30 Gave UOA Corp. a $10,000 cash loan and accepted UOA's four-month, 4.5% note. Inter- est is due at maturity. Dec. 31 Accrued interest is recorded on any outstanding notes at year end. Instructions Record the above transactions. Assume Durand has no stated return policy. Taking it Further Noah Inc. has recovered some of its financial health and would like to do business with Durand Co. once again; that is, by purchasing goods on credit. What should Durand Co. do? What conditions might Durand Co. put in its future agreements with Noah?

Answer 1

Answer to P8.9B (First question in the list):

Credit $25,000 $13,750 --> As the note is received after discount period of 10 days (2/10 term), customer lost discount benefit. $25,000 Date General Journal Debit Jan. 2 Accounts Receivable-Braun Company $25,000 Sales Revenue (To record sale on account) Jan. 2 Cost of Goods Sold $13,750 Merchandise Inventory (To record prepaid insurance expired) Feb. 1 Note Receivable - Braun Company $25,000 Accounts Receivable-Braun Company (To record note receivable received on account) Mar. 31 Cash $20,500 Note Receivable - Vincent Company Interest Receivable Interest Revenue (To record note collected) May. 1 Cash $25,375 Note Receivable - Braun Company Interest Revenue (To record note collected) May. 25 Note Receivable - Naoh Inc. $12,000 Accounts Receivable - Naoh Inc. (To record note receivable received on account) $20,000 $200 (Given] $300 ($20000 x 6% < (3/2) --> 3 months' interest is recognized as revenue this year] _ [2 months' interest was accrued on Dec. 31 already out of 5 months' interest] $25,000 $375 ($25000 x 6% < (3/12) --> 3 months' interest is recognized as revenue this year] $12,000

($12000 x 6% x (1/12) --> 1 months' interest is collected] ($12000 x 6% x (1/12) --> 1 months' interest is collected] Jun. 25 Cash $60 Interest Revenue $60 (To record 1 month interest on note collected) Jul. 25 Bad Debt Expense $12,060 Note Receivable - Naoh Inc. $12,000 Interest Revenue $60 (To record note dishonored and not collectible from customer) Nov. 30 Note Receivable - UOA Corp. $10,000 Cash $10,000 (To record note receivable received on loan) Dec. 31 Interest Receivable $37.50 Interest Revenue (To record interest accrued for 1 month on UOA's note) $10000 x 4.5% x (1/12) --> 1 months' interest is accrued] $37.50