EX 11-2 Entries for discounting notes payable

TKR Enterprises issues a 30-day note for $570,000 to Sweeney Industries for merchandise inventory. Sweeney Industries discounts the note at 8%.

a. Journalize TKR Enterprises’ entries to record:
1. the issuance of the note.
2. the payment of the note at maturity.

b. Journalize Sweeney Industries’ entries to record:
1. the receipt of the note.
2. the receipt of the payment of the note at maturity.

Answer:

a. 1. Merchandise Inventory............................................ 566,200   Interest Expense ...................................................... 3,800*    Notes Payable.....................................................  570,000   2. Notes Payable........................................................... 570,000    Cash.....................................................................  570,000  
b. 1. Notes Receivable ..................................................... 570,000    Sales ....................................................................  566,200    Interest Revenue.................................................  3,800*   2. Cash .......................................................................... 570,000    Notes Receivable................................................  570,000   *$570,000 × 8% × 30/360 

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