Question

Q. 4 (Marks: 10)

An inexperienced accountant for Morgan Company made the following incorrect entries.

a. Notes Receivable ............................................................................... 21,600

Accounts Receivable ................................................................. 20,000

Interest Revenue ...................................................................... 1,600

Facts: Accepted a $20,000, 1 year, 8% note from Joe Wood Company for balance due on

account.

b. Accounts Receivable .......................................................................... 20,000

Sales Revenue .......................................................................... 20,000

Facts: Accepted Visa credit card for $20,000; the service fee is 2%.

c. Allowance for Doubtful Accounts ..................................................... 12,300

Notes Receivable ...................................................................... 12,000

Interest Revenue ...................................................................... 300

Facts: M. Adler dishonoured a $12,000, 10%, 3-month note because of bankruptcy. Adler is expected to pay. No interest had been accrued on the note.

Required:

Prepare entries to correct Morgan Company's books based on the facts given. Do not reverse out incorrect entries that were recorded above, but rather prepare journals to correct the account balances so that they reflect the proper amounts. Give brief explanations for your journal entry.

Answer 1

Date	Account Titles and Explanations	Debit	Credit
a)	Interest Revenue	1,600.00
	Notes Receivables		1,600.00
	(To record receipt of note interest.)
	To record exchange of a note from Joe wood Company for open account notes receivables has been debited $20,000 and Accounts receivables credited $20,000 , it has been recorded correctly but accountant made a incorrect enty for interest revenue that has been corrected in the above entry.
b)	Cash	19,600.00
	Service Charge Expense (20000 x 2%)	400.00
	Accounts Receivables		20,000.00
	To record credit card sales entry ,Cash  $ 19600 and Service charge Expense 400 would have debited and Sales revenue credited but accounted made a mistake by not recording the service charges.  VISA sales are treated as cash sales because the cash will be deposited the next day.
c)	Accounts Receivable—M. Adler (12000 + 12000 x 10% x 3/12)	12,300.00
	Allowance for Doubtful Accounts		12,300.00
	The correct entry accountant should have recorded Account receivables Debited 12000 , notes receivables credited 12000 and interest revenue credited $300 but he has debited Allowance for Doubtful Accounts instead of accounts receivables for correcting the error above entry has been made.