14
Notes Receivable and
1. A company may use Notes Payable instead of Accounts Payable:
2. The parts of a promissory note are: Amount borrowed; length of note; payee; rate of interest;
maker; and maturity date.
4. Reject. Notes Receivable is a current asset.
6. Disagree. Notes that have not matured are listed in the Notes Receivable account.
7. Notes Payable is transferred back to Accounts Payable. At this time, the interest expense is
8. A. Find maturity value
10. When one is discounting one’s own note.
11. Debit is the normal balance of the Discount on Notes Payable account. It is a contra liability.
12
Maturity Value of Note x Bank Interest Rate
= Effective Interest Rate
Amount of Cash Proceeds Received from Note
13. Dr. Interest Expense
Cr. Discount on Notes Payable
14. The question in this case is whether Kevin should tell his girlfriend confidential information
SOLUTIONS TO CONCEPT CHECKS
1.
a.
The maturity date for this note is September 13.
b.
The maturity date for this note is February 7 of the next year.
2.
a.
$8,800 x .06 x
9
= $396
12
Maturity Value: $8,800 + 396 = $9,196
b.
$12,000 x .02 x
75
= $50
360
Maturity Value: $12,000 + $50 = $12,050
3.
a.
Purchases
7,800
Accounts Payable, Jackson Co.
7,800
Bought on account
b.
Accounts Payable, Jackson Co.
7,800
Notes Payable
7,800
Transferred to note payable
c.
Notes Payable
7,800
Interest Expense
106
Cash
7,906
Paid note on due date
4.
Donny Caste lost $49.00 in interest by discounting the note.
5.
a.
Maturity value is $2,711.25.
b.
Discount period is 7 days.
c.
Bank discount is $ 3.69.
d.
Proceeds are $2,707.56.
6.
Cash
2,707.56
Notes Receivable
2,700.00
Interest Income
7.56
Discounted Note Receivable
7.
Accounts Receivable, Rusty Co.
2,717.25
Cash
2,717.25
Customer Dishonored Note
8.
Cash
Asset
Debit
$54,650
Discount on Notes Payable
Contra-Liability
Debit
350
Notes Payable
Liability
Credit
55,000
9.
Interest Expense
54
Discount on Notes Payable
54
Adjustment for interest
SOLUTIONS TO SET A EXERCISES
14A-1.
(a)
$500.00
(b)
$1,000.00
(c)
$380.00
14A-2.
(a)
The note issued on January 17, 201X, with terms of 30 days
will mature on February 16, 201X.
(b)
The note issued on July 14, 201X, with terms of 80 days will
mature on October 2, 201X.
(c)
The note issued on July 31, 201X, with terms of 4 months will
mature on November 30, 201X.
(d)
The note issued on June 25, 201X, with terms of 70 days will
mature on September 3, 201X.
14A-3.
(a)
Maturity Date
February 16, 201X
47
Note Issues
January 17, 201X
–17
Length of Time
30
(b)
Maturity Date
October 2, 201X
275
Note Issued
July 14, 201X
–195
Length of Time
80
(c)
Note is monthly
so don’t need
table.
(d)
Maturity Date
September 3, 201X
246
Note Issued
June 25, 201X
–176
Length of Time
70
EXERCISES (CONTINUED)
14A-4
(a)
Cash
8,064
Interest Income
64
Notes Receivable
8,000
Discounted Note Receivable
(b)
Account Receivable—Raleigh Co.
8,400
Cash
8,400
Dishonored Note Receivable
14A-5.
Cash
23,360
Discount on Notes Payable
640
Notes Payable
24,000
Borrowed money with discounted interest
SOLUTIONS TO SET B EXERCISES
SET B
14B-1.
(a)
$2,040.00
(b)
$1,560.00
(c)
$476.67
14B-2.
(a)
The note issued on October 17, 201X, with terms of 30 days
will mature on November 16, 201X.
(b)
The note issued on July 14, 201X, with terms of 95 days will
mature on October 17, 201X.
(c)
The note issued on May 31, 201X, with terms of 4 months
will mature on September 30, 201X.
(d)
The note issued on June 25, 201X, with terms of 80 days will
mature on September 13, 201X.
14B-3.
(a)
Maturity Date
November 16, 201X
320
Note Issues
October 17, 201X
–290
Length of Time
30
(b)
Maturity Date
October 17, 201X
290
Note Issued
July 14, 201X
–195
Length of Time
95
(c)
Table is not
needed.
(d)
Maturity Date
September 13, 201X
256
Note Issued
June 25, 201X
–176
Length of Time
80
EXERCISES (CONTINUED)
14B-4
(a)
Cash
8,645.87
Interest Income
45.87
Notes Receivable
8,600.00
Discounted Note Receivable
(b)
Account Receivable—Radford Co.
8,944.00
Cash
8,944.00
Dishonored Note Receivable
14B-5.
Cash
25,200
Discount on Notes Payable
1,800
Notes Payable
27,000
Borrowed money with discounted interest
Copyright © 2016 Pearson Education, Inc.
14-8
SOLUTIONS TO SET A PROBLEMS
PROBLEM 14A-1
GENERAL JOURNAL
PAGE 1
Date
201X
Account Titles and Description
PR
Dr.
Cr.
Buyer-Ritter Co.
Jun.
11
Purchases
6
5
0
0
00
Accounts Payable—Lawton Co.
6
5
0
0
00
Bought on Account
Jul.
11
Accounts Payable—Lawton Co.
5
0
0
0
00
Notes Payable
5
0
0
0
00
Transferred to Notes Payable
Oct.
9
Notes Payable
5
0
0
0
00
Interest Expense
2
2
5
00
Cash
5
2
2
5
00
Paid off note plus interest
9
Notes Payable
5
0
0
0
00
Interest Expense
2
2
5
00
Accounts Payable—Lawton Co.
5
2
2
5
00
Dishonored note to Lawton
15
Accounts Payable—Lawton Co.
5
2
2
5
00
Cash
5
2
2
5
00
Paid amount due to Lawton
Seller—Lawton Co.
Jun.
11
Accounts Receivable—Ritter Co.
6
5
0
0
00
Sales
6
5
0
0
00
Sold on Account
Jul.
11
Notes Receivable
5
0
0
0
00
Accounts Receivable—Ritter Co.
5
0
0
0
00
Transferred to Notes Receivable
Oct.
9
Cash
5
2
2
5
00
Interest Income
2
2
5
00
Notes Receivable
5
0
0
0
00
Collected on note plus interest
PROBLEM 14A-1 (CONCLUDED)
GENERAL JOURNAL
PAGE 2
Date
201X
Account Titles and Description
PR
Dr.
Cr.
Oct.
9
Accounts Receivable—Ritter Co.
5
2
2
5
00
Interest Income
2
2
5
00
Notes Receivable
5
0
0
0
00
Dishonored note from Ritter
15
Cash
5
2
2
5
00
Accounts Receivable—Ritter Co.
5
2
2
5
00
Collected past due amount
from Ritter
PROBLEM 14A-2
A.
Maturity Value of the note is $29,394.72
$29,000 + ($29,000 x 7% x 70/360) = $29,394.72
B.
Number of days the bank will hold the note until maturity date is 20.
C.
Bank discount is $163.30
$29,394.72 x 10% x 20/360 = $163.30
D.
Proceeds are $29,231.42
$29,394.72 – $163.30 = $29,231.42