Recording and Reporting Transactions with Short-Term, Interest-Bearing Note Receivable On April 1, 2020, Welsch Company sold...
Recording and Reporting Transactions with Short-Term, Interest-Bearing Note Receivable
On April 1, 2020, Welsch Company sold merchandise to Customer Rodriguez for $28,800, terms 2/10, n/30. Because of nonpayment by Rodriguez, Welsch received a $28,800, 10%, 12-month note dated May 1, 2020. The stated rate and the market rate are equal. The company’s annual reporting period ends December 31. Customer Rodriguez paid the note in full, plus cash interest, on its maturity date.
Required
a. Prepare all entries for Welsch related to the above transactions, including any year-end adjustments. Welsh uses the gross method for cash discounts.
| Date | Account Name | Dr. | Cr. |
|---|---|---|---|
| April 1, 2020 | AnswerCashAccounts ReceivableAllowance for Doubtful AccountsInterest ReceivableReceivable from FactorNote ReceivableDiscount on Note ReceivablePayable to Seller of ReceivablesRefund LiabilityRecourse LiabilityNote PayableSales RevenueSales ReturnsSales DiscountSales Discount ForfeitedFinancing RevenueInterest RevenueCost of Goods SoldBad Debt ExpenseFinance ExpenseInterest ExpenseLoss on Sale of NoteLoss on Sale of ReceivablesN/A | Answer | Answer |
| AnswerCashAccounts ReceivableAllowance for Doubtful AccountsInterest ReceivableReceivable from FactorNote ReceivableDiscount on Note ReceivablePayable to Seller of ReceivablesRefund LiabilityRecourse LiabilityNote PayableSales RevenueSales ReturnsSales DiscountSales Discount ForfeitedFinancing RevenueInterest RevenueCost of Goods SoldBad Debt ExpenseFinance ExpenseInterest ExpenseLoss on Sale of NoteLoss on Sale of ReceivablesN/A | Answer | Answer | |
| May 1, 2020 | AnswerCashAccounts ReceivableAllowance for Doubtful AccountsInterest ReceivableReceivable from FactorNote ReceivableDiscount on Note ReceivablePayable to Seller of ReceivablesRefund LiabilityRecourse LiabilityNote PayableSales RevenueSales ReturnsSales DiscountSales Discount ForfeitedFinancing RevenueInterest RevenueCost of Goods SoldBad Debt ExpenseFinance ExpenseInterest ExpenseLoss on Sale of NoteLoss on Sale of ReceivablesN/A | Answer | Answer |
| AnswerCashAccounts ReceivableAllowance for Doubtful AccountsInterest ReceivableReceivable from FactorNote ReceivableDiscount on Note ReceivablePayable to Seller of ReceivablesRefund LiabilityRecourse LiabilityNote PayableSales RevenueSales ReturnsSales DiscountSales Discount ForfeitedFinancing RevenueInterest RevenueCost of Goods SoldBad Debt ExpenseFinance ExpenseInterest ExpenseLoss on Sale of NoteLoss on Sale of ReceivablesN/A | Answer | Answer | |
| Dec. 31, 2020 | AnswerCashAccounts ReceivableAllowance for Doubtful AccountsInterest ReceivableReceivable from FactorNote ReceivableDiscount on Note ReceivablePayable to Seller of ReceivablesRefund LiabilityRecourse LiabilityNote PayableSales RevenueSales ReturnsSales DiscountSales Discount ForfeitedFinancing RevenueInterest RevenueCost of Goods SoldBad Debt ExpenseFinance ExpenseInterest ExpenseLoss on Sale of NoteLoss on Sale of ReceivablesN/A | Answer
Mark 0.00 out of 1.00 |
Answer |
|
AnswerCashAccounts ReceivableAllowance for Doubtful AccountsInterest ReceivableReceivable from FactorNote ReceivableDiscount on Note ReceivablePayable to Seller of ReceivablesRefund LiabilityRecourse LiabilityNote PayableSales RevenueSales ReturnsSales DiscountSales Discount ForfeitedFinancing RevenueInterest RevenueCost of Goods SoldBad Debt ExpenseFinance ExpenseInterest ExpenseLoss on Sale of NoteLoss on Sale of ReceivablesN/A |
Answer | Answer | |
| April 30, 2021 | AnswerCashAccounts ReceivableAllowance for Doubtful AccountsInterest ReceivableReceivable from FactorNote ReceivableDiscount on Note ReceivablePayable to Seller of ReceivablesRefund LiabilityRecourse LiabilityNote PayableSales RevenueSales ReturnsSales DiscountSales Discount ForfeitedFinancing RevenueInterest RevenueCost of Goods SoldBad Debt ExpenseFinance ExpenseInterest ExpenseLoss on Sale of NoteLoss on Sale of ReceivablesN/A | Answer | Answer |
| AnswerCashAccounts ReceivableAllowance for Doubtful AccountsInterest ReceivableReceivable from FactorNote ReceivableDiscount on Note ReceivablePayable to Seller of ReceivablesRefund LiabilityRecourse LiabilityNote PayableSales RevenueSales ReturnsSales DiscountSales Discount ForfeitedFinancing RevenueInterest RevenueCost of Goods SoldBad Debt ExpenseFinance ExpenseInterest ExpenseLoss on Sale of NoteLoss on Sale of ReceivablesN/A | Answer | 28,800 | |
| Interest Receivable | Answer | Answer | |
| AnswerCashAccounts ReceivableAllowance for Doubtful AccountsInterest ReceivableReceivable from FactorNote ReceivableDiscount on Note ReceivablePayable to Seller of ReceivablesRefund LiabilityRecourse LiabilityNote PayableSales RevenueSales ReturnsSales DiscountSales Discount ForfeitedFinancing RevenueInterest RevenueCost of Goods SoldBad Debt ExpenseFinance ExpenseInterest ExpenseLoss on Sale of NoteLoss on Sale of ReceivablesN/A | Answer | Answer |
b. Show what should be presented on the 2020 income statement and balance sheet.
| Income Statement, 2020 | |
|---|---|
| Sales revenue | Answer |
| Interest revenue | Answer |
| Balance Sheet, December 31, 2020 | |
|---|---|
| Note receivable | Answer |
| Interest receivable | Answer |
Homework Answers
a. Prepare all entries for Welsch related to the above transactions, including any year-end adjustments. Welsh uses the gross method for cash discounts.
| Date | Account Name | Dr. | Cr. |
|---|---|---|---|
| April 1, 2020 | Account receivable | 28800 | |
| Sales revenue | 28800 | ||
| May 1, 2020 | Notes receivable | 28800 | |
| Account receivable | 28800 | ||
| Dec. 31, 2020 | Interest receivable (28800*10%*8/12) | 2400 | |
| Interest revenue | 2400 | ||
| April 30, 2021 | Cash | 32400 | |
| Interest revenue | 1200 | ||
| Interest Receivable | 2400 | ||
| Notes receivable | 28800 |
b. Show what should be presented on the 2020 income statement and balance sheet.
| Income Statement, 2020 | |
|---|---|
| Sales revenue | 28800 |
| Interest revenue | 2400 |
| Balance Sheet, December 31, 2020 | |
|---|---|
| Note receivable | 28800 |
| Interest receivable | 2400 |
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