Problem Solving Survival Guide to accompany Financial Accounting, 8th Edition

EXERCISE 8-5

Purpose:

(L.O. 6) This exercise reviews the journal entries for various transactions involving notes receivable.

The following transactions occurred during 2014 and pertain to the Aaron Retail Company.

June 1	Accepted a note from R. Greenblatt in settlement of his $2,000 account. The note is due in six months and bears interest at 12%.
July 1	Sold merchandise to C. Lynn for $5,000. Accepted a note due in nine months at 10%.
Oct. 1	Accepted a note from D. Gioia for $6,000 in settlement of his account receivable. The 10% note is due in 180 days.

Instructions

1. Prepare the journal entries to record the receipt of each of the three notes.
2. Indicate the due date of each note.
3. Assume the first note is collected on its due date. Prepare the appropriate journal entry to record its collection.
4. Assume the accounting period ends on December 31. Prepare the appropriate adjusting entry(s) at December 31, 2014, to record accrued interest on the second and third notes.
5. Assume the second note is honored on its maturity date. Prepare the journal entry to record this transaction.
6. Assume the third note is dishonored on its due date. Aaron expects eventual collection. Prepare the appropriate journal entry.