Accounts Receivable

Schultz Co. sells its goods and services to customers on a credit basis. Schultz adjusts its accounts just once a year, at the December 31 year-end. The companys balance sheet at year-end 2018 reported the following information concerning the companys accounts receivable:

Current assets:

Accounts receivable, net of allowance of $231,465 $2,186,970

During 2019, Schultz experienced the following transactions related to its accounts receivable:

Sales on account	$11,179,280
Collections on account	10,614,915
Write-offs of accounts receivable	317,120
Collections of accounts previously written off	70,615

Schultz uses an aging of receivables to facilitate its accounting for doubtful accounts. The following information is available from the companys aging schedule at year-end 2019:

Age Group	Amount	Estimated % Uncollectible
0-30 days	$1,282,370	1%
31-60 days	674,140	8%
61-90 days	341,920	18%
91-120 days	203,580	29%
Over 120 days	163,670	63%
	$2,665,680

4-Year Promissory Note

On December 31, 2019, Schultz received a 4-year promissory note as consideration in an inventory sale transaction on that date. The 5%, $63,480 note requires the customer to pay interest annually on December 31 (2020 through 2023). The going market rate of interest for comparable notes on the issue date was 8%.

5-Year Promissory Note

On that same date (December 31, 2019), Schultz received a 5-year promissory note from another customer as consideration in an inventory sale transaction. The note is noninterest-bearing, and it calls for the customer to pay the full face value of $38,125 on the December 31, 2024 maturity date. The going market rate of interest for comparable notes on the issue date was 9%.

Schultz uses the effective-interest method to amortize premiums and discounts on all of its promissory notes.

Instructions

Address the following matters related to Schultz Co.s accounts and notes receivable transactions:

1. Give the journal entries to record the transactions in 2019 related to Schultzs accounts receivable. (Hint A total of 5 entries are needed.)

2. Prepare the adjusting entry needed for bad debts at year-end 2019 based on the aging schedule information provided.

3. Give the entry to record Schultzs receipt of the 4-year promissory note on December 31, 2019.

4. Give the interest and collection entries Schultz must make over the remaining term of the 4-year note (through December 31, 2023). Tip You might find it helpful to start by preparing an amortization schedule (see pages 340 and 341).

5. Give the entry to record Schultzs receipt of the 5-year promissory note on December 31, 2019.

6. Give the interest and collection entries Schultz must make over the remaining term of the 5-year note (through December 31, 2024). Tip You might find it helpful to start by preparing an amortization schedule (see pages 340 and 341).