Question

The following transactions are from Ohlm Company. (Use 360 days a year.)

Year 1

Dec.		16		Accepted a $14,700, 60-day, 7% note in granting Danny Todd a time extension on his past-due account receivable.
		31		Made an adjusting entry to record the accrued interest on the Todd note.

Year 2

Feb.		14		Received Todd’s payment of principal and interest on the note dated December 16.
Mar.		2		Accepted a(n) $7,700, 7%, 90-day note in granting a time extension on the past-due account receivable from Midnight Co.
		17		Accepted a(n) $3,900, 30-day, 7% note in granting Ava Privet a time extension on her past-due account receivable.
Apr.		16		Privet dishonored her note.
May		31		Midnight Co. dishonored its note.
Aug.		7		Accepted a(n) $8,850, 90-day, 8% note in granting a time extension on the past-due account receivable of Mulan Co.
Sep.		3		Accepted a(n) $3,360, 60-day, 8% note in granting Noah Carson a time extension 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 the Allowance for Doubtful Accounts.

1-a. First, complete the table below to calculate the interest amount at December 31, Year 1.
1-b. Use the calculated value to prepare your journal entries for Year 1 transactions.
1-c. First, complete the table below to calculate the interest amounts.
1-d. Use those calculated values to prepare your journal entries for Year 2 transactions.
2. If Ohlm pledged its receivables as security for a loan from the bank, where on the financial statements does it disclose this pledge of receivables?

Answer 1

D.Todd note-December 16
		total	interest
		through	recognized
		maturity	31-Dec
Principal		14,700	14,700
Rate(%)		7%	7%
time		60/360	15/360
total interest		172	43
Date	General journal				Debit	credit
16-Dec	Note receivable				14,700
	Account receivable					14,700
31-Dec	interest receivable				43
	interest revenue					43
		Midnight	privet	Mulan		carson
		2-Mar	17-Mar	7-Aug		3-Sep
Principal		7,700	3,900	8,850		3,360
Rate(%)		7%	7%	8%		8%
time		90/360	30/360	90/360		60/360
total interest		135	23	177		45

Date	General journal				Debit	credit
14-Feb	Cash				14,878
	interest revenue					135
	Note receivable-T Todd					14,700
	interest receivable					43
2-Mar	Note receivable				7,700
	Account receivable-Midnight co					7,700
17-Mar	Note receivable				3,900
	Account receivable-Privet					3,900
16-Apr	Account receivable-privet				3,923
	note receivable					3,900
	interest revenue					23
31-May	Account receivable-Midnight				7,835
	note receivable					7,700
	interest revenue					135
7-Aug	Note receivable				8,850
	account receivable-Mulan Co					8,850
3-Sep	Note receivable				3,360
	account receivable-Carson					3,360
2-Nov	cash				3,405
	note receivable					3,360
	interest revenue					45
5-Nov	cash				9,027
	note receivable					8,850
	interest revenue					177
1-Dec	Allowance for Doubtful accounts				3,923
	Account receivable-privet					3,923
	pledge-Disclosure of the arrangement in notes to the financial statement

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