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Exercise 5-75 (Algorithmic) Recording Notes Receivable: Issuance, Payment, and Default

Marydale Products permits its customers to defer payment by giving personal notes instead of cash. All the notes bear interest and require the customer to pay the entire note in a single payment 6 months after issuance. Consider the following transactions, which describe Marydale's experience with two such notes:

On October 31, Marydale accepts a 6-month, 12% note from Customer A in lieu of a $3,600 cash payment for merchandise delivered on that day.

On February 28, Marydale accepts a 6-month, $2,700, 12% note from Customer B in lieu of a $2,700 cash payment for merchandise delivered on that day.

On April 30, Customer A pays the entire note plus interest in cash.

On August 31, Customer B pays the entire note plus interest in cash.

Required:

Hide Prepare the necessary journal and adjusting entries required to record Transactions a through d in Marydale's records. For a compound transaction, if an amount box does not require an entry, leave it blank. a. Oct. 31 Cash Interest Income Notes Payable Notes Receivable Sales Revenue Correct 2 Correct 3 Interest Income Interest Receivable Notes Receivable Sales Revenue Unearned Sales Revenue Correct 4 Correct 5 Record sale Dec. 31 Cash Interest Income Interest Receivable Notes Receivable Sales Revenue Correct 8 Correct 9 Interest Income Interest Payable Interest Receivable Notes Receivable Sales Revenue Correct 10 Correct 11 Record accrued interest income b. Feb. 28 Cash Interest Income Interest Receivable Notes Payable Notes Receivable Correct 14 Correct 15 Cash Interest Income Interest Receivable Notes Receivable Sales Revenue Correct 16 Correct 17 Record sale c. Apr. 30 Accounts Receivable Cash Interest Income Interest Receivable Notes Receivable Correct 20 Correct 21 Correct 22 Cash Interest Payable Notes Payable Notes Receivable Sales Revenue Correct 23 Correct 24 Correct 25 Accounts Payable Interest Income Interest Payable Notes Payable Sales Revenue Correct 26 Correct 27 Correct 28 Accounts Receivable Cash Interest Expense Interest Receivable Notes Payable Correct 29 Correct 30 Correct 31 Record collection of note receivable d. Aug. 31 Accounts Payable Accounts Receivable Cash Interest Income Interest Receivable Correct 34 Correct 35 Correct 36 Cash Interest Expense Interest Receivable Notes Payable Notes Receivable Correct 37 Correct 38 Correct 39 Cash Interest Expense Interest Income Interest Receivable Sales Revenue Correct 40 Correct 41 Correct 42 Record collection of note receivable

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