Question

Q3/

On November 1, 2018, Lawn Inc. accepted a three-month, 9%, $69,600 note from Sipacore Inc. in settlement of its account. Interest is due on the first day of each month, starting December 1. Both companies’ year ends are December 31

A/

Prepare all journal entries for Lawn over the term of the note. Assume that the note is collected in full on the maturity date. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
Nov. 1, 2018Dec. 1, 2018Dec. 31, 2018Jan. 1, 2019Feb. 1, 2019

B/

Prepare all journal entries for Sipacore over the term of the note. Assume that the note is paid in full on the maturity date. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date		Account Titles and Explanation	Debit	Credit
Nov. 1, 2018Dec. 1, 2018Dec. 31, 2018Jan. 1, 2019Feb. 1, 2019
Feb. 1, 2019

C/

Assume that, instead of honouring the note at maturity, Sipacore dishonours it. Prepare the necessary journal entry on Lawn’s books at the maturity date, February 1, 2019, assuming that eventual collection of the note is (1) expected, and (2) not expected. Interest was last paid by Sipacore on January 1. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

No	Date	Account Titles and Explanation	Debit	Credit
(1)	Feb. 1
		(To record dishonoured note; eventual collection expected)
(2)	Feb. 1
		(To record dishonoured note; eventual collection not expected)

Answer 1

	Date	Accounts titles and explanation	Debit	Credit
A	November 01 2018	9% Note      A/c	69600
		To, Sipacore Inc.		69600
		(Being Note accepted from Sipacore)
	December 01 2018	Bank A/c Dr.	522
		To, Interest on loan note A/c		522
		(Being interest received on Note)
	December 31 2018	Interest accrued on 9 % Note	522
		To, Interest on loan Note a/c		522
		(Being income booked for december18)
	January 01 2019	Bank A/c Dr.	522
		To, Interest accrued on 9% Note		522
		(Being amount received for interest)
	February 01 2019	Bank A/c Dr.	70122
		To, Interest on loan note A/c		522
		To, 9% Note A/c		69600
		(Being amount received for interest and payment received)
	(Note:- Above question is solved taking assumption that Interest is monthly paid)
B	Date	Accounts titles and explanation	Debit	Credit
	November 01 2018	Lawn A/c Dr.	69600
		To, 9% Note      A/c		69600
		(Being Note given to Lawn)
	December 01 2018	Interest on loan note A/c	522
		To, Bank A/c Dr.		522
		(Being interest paid on Note)
	December 31 2018	Interest on loan Note a/c	522
		To, Interest payable on 9 % Note		522
		(Being expense booked for december18)
	January 01 2019	Interest payable on 9% Note	522
		To, Bank A/c		522
		(Being amount paid for interest)
	February 01 2019	Interest on loan note A/c	522
		9% Note A/c	69600
		To, Bank A/c Dr.		70122
		(Being interest and Note paid)
C (1)	February 01 2019	Sipacore A/c      Dr.	70122
		To, Interest on loan note A/c		522
		To, 9% Note A/c		69600
		(Being Interest booked as income and Note dishonoured)
C (2)		Bad debt A/c (Loss)     Dr.	69600
		To, 9% Note A/c		69600
		(Being loss recognised on non recoverability of Note)