Notes and InterestOn August 1,2011, Hampton Construction received a 9 percent, six-month n...

Notes and Interest

On August 1,2011, Hampton Construction received a 9 percent, six-month note receivable from Dusty Roads, one of HamptonConstruction's problem credit customers. Roads had.owed $36,000 on an outstanding account receivable. The note receivable was taken in settlement of this amount. Assume that Hampton Construction makes adjusting entries for accrued interest revenue once each year on December 31

a.   Journalize the following four events on the books of HamptonConstruction.

 1. Record the receipt of the note on August I in settlement of the account receivable.

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 2.  Record accrued interest at December 31,2011.

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 3.  Assume thatDusty Roads pays the note plus accrued interest in full. Record the collection of the principal andinterest on January 31,2012.

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 4.  Assume that Dusty Roads did not make the necessary principal and interest payment on January 31,2012. Rather, assume that hedefaulted on his obligation. Record thedefault on January 31,2012.

b. Indicate the effects ofeach ofthe four transactions journalized in part a on the elements of the financial statement shown below. Use the code letters I for increase, D for decrease, and NE for no effect.