Natalie has been approached by one of her friends, Curtis Lesperance. Curtis runs a coffee shop where he sells specialty coffees and prepares and sells muffins and cookies. He is very anxious to buy one of Natalie’s juicers because he would then be able to prepare and sell smoothies as well. Curtis, however, cannot afford to pay for the juicer for at least 30 days. He has asked Natalie if she would be willing to sell him the juicer on credit.

Natalie comes to you for advice and asks the following questions.

1. “Curtis has given me a set of his most recent financial statements. What calculations should I do with the data from these statements? What questions should I ask him after I have analyzed the statements? How will this information help me decide if I should extend credit to Curtis?”

2. “If, instead of extending credit to Curtis for 30 days, I have Curtis sign a promissory note and he is unable to pay at the end of the agreement term, will having that signed promissory note really make any difference?”

The following transactions occur in November and December 2021:

Nov. 1 After much thought, Natalie sells a juicer to Curtis for $1,050. (The cost of the juicer was $553.) Curtis signs a two-month, 7.5% promissory note. Curtis can repay the note at any time before the due date, with interest accruing to the date of payment.

30 Curtis calls Natalie. He expects to pay the amount outstanding in the next week or so.

Dec. 15 Natalie receives a cheque from Curtis in payment of his balance owing plus interest that has accrued.

Instructions

a. Answer Natalie’s questions.

b. Prepare journal entries for the transactions that occurred in November and December.