Farwell Company adjusts its accounting records monthly in order to prepare monthly financial statements. On September 30, 2021, selected general ledger account balances are:

Notes receivable .................. $37,000

Interest receivable ...................... 228

Notes Receivable include the following:

Interest is payable on the first day of each month for notes with terms of one year or longer. Interest is payable at maturity for notes with terms of less than one year. In October, the following transactions were completed:

Oct. 31 Received notice that the Fournier Co. note had been dishonoured. (Assume that Fournier is expected to pay in the future.)

31 Collected the amount owing from K. Leroy Co.

Instructions

a. Record the transactions on October 31 and the October 31 adjusting entry to accrue interest revenue. (Round to the nearest dollar.)

b. Create general ledger accounts for Notes Receivable and Interest Receivable and enter the opening balances on October 1. Post the entries from October 31 to Notes Receivable and Interest Receivable and update the balances.

c. Show the balance sheet presentation of the interest and notes receivable accounts at October 31.

d. How would the journal entry on October 31 be different if Fournier were not expected to pay in the future?

The interest rate for the Fournier note is higher than for the other notes. Why might that have been the case?

Transcribed Image Text:

Issue Date Maker Principal Interest Term 3 months 2 months 18 months Aug. 31, 2021 Sept. 30, 2021 Aug. 1, 2021 K. Leroy Co. Fournier Co. $12,000 9,000 16,000 8.0% 9.0% Nesbitt Co. 7.0%