Question

On December 1, 2017 Klein Company received a $12,000, 8%, 3-month note from Ann Howe in settlement of an account receivable due today.

Instructions:

1.    Prepare journal entries in general journal of Klein Company to record: (1) the receipt of the note; (2)the adjustment for interest on December 31, 2017; (3) the collection of principal and interest on the due date

2.    Assume that, on the due date, Klein Company received notification from Ann Howe that she was unable to honor her note at this time. It is expected that Howe will pay at a later date (November 15, 2018). On November 15, Klein Company received full payment from Ann Howe for her note receivable previously dishonored.

Prepare journal entries in general journal of Klein Company to record: (1) the default on the due date; (2) collection of receivable on November 15, 2018.

Answer 1

1) Journal entries

Date	account and explanation	debit	credit
Dec 1	Notes receivable	12000
	Account receivable		12000
	(To record notes receivable)
Dec 31	Interest receivable (12000*8%*1/12)	80
	Interest revenue		80
	(To record accured interest)
Mar 1	Cash	12240
	Notes receivable		12000
	Interest receivable		80
	Interest revenue		160
	(To record collection)

2) Journal entry

Date	Account and explanation	debit	credit
Mar 1	Account receivable	12240
	Notes receivable		12000
	Interest receivable		80
	Interest revenue		160
	(To record dishonored)
Nov 15	Cash	12240
	Account receivable		12240
	(To record collection)