The following selected transactions are from Castella Company.
2008
Nov. 1 Accepted a $13,560, 90-day, 10% note dated this day in granting Eric Merklin a time extension
on his past-due account receivable.
Dec. 31 Made an adjusting entry to record the accrued interest on the Merklin note.
2009
Jan. 30 Received Merklin’s payment for principal and interest on the note dated November 1.
Mar. 1 Accepted a $6,000, 8%, 30-day note dated this day in granting a time extension on the pastdue
account receivable from Zada Co.
Mar. 2 Accepted a $4,080, 60-day, 5% note dated this day in granting Shane Patru a time extension
on his past-due account receivable.
30 The Zada Co. dishonored its note when presented for payment.
May 1 Received payment of principal plus interest from S. Patru for the March 2 note.
June 15 Accepted a $9,000, 60-day, 11% note dated this day in granting a time extension on the pastdue
account receivable of Mary Braff.
21 Accepted a $3,160, 90-day, 10% note dated this day in granting Harris Guam a time extension
on his past-due account receivable.
Aug. 14 Received payment of principal plus interest from M. Braff for the note of June 15.
Sep. 19 Received payment of principal plus interest from H. Guam for the June 21 note.
Nov. 30 Wrote off Zada Co.’s account against Allowance for Doubtful Accounts.
Required
1. Prepare journal entries to record these transactions and events. (Round amounts to the nearest dollar.)
Analysis Component
2. What reporting is necessary when a business pledges receivables as security for a loan and the loan is still outstanding at the end of the period? Explain the reason for this requirement and the accounting principle being satisfied.
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