EA16. LO 9.6 Mystic Magic issued a $120,250 note on January 1, 2018 to a customer, Amy Arnold, in exchange for merchandise. Terms of the note are 9-month maturity date on October 1, 2018 at a 9.6% annual interest rate. Amy Amold does not pay on her account and dishonors the note. On November 10, 2018, Mystic Magic decides to sell the dishonored note to a collection agency for 25% of its value. Record the journal entries for Mystic Magic for the following transactions. A. Initial sale on January 1, 2018 B. Dishonored note entry on October 1, 2018 C. Receivable sale on November 10, 2018 Solution A Jan. 1, 2018 Notes Receivable: Arnold Sales Revenue To record sale in exchange for notes receivable, 9- month maturity, 9.6% interest rate B. Oct. 1. 2018 Accounts Receivable: Arnold Notes Receivable: Arnold Interest Revenue To record conversion of note to Accounts Receivable, dishonored note C. Nov. 10, 2018 Cash Factoring Expense Accounts Receivable: Arnold To record sale of Accounts Receivable to third- party factor EA14. LO 9.6 Arvan Patel is a customer of Bank's Hardware Store. For Mr. Patel's latest purchase on January 1, 2018, Bank's Hardware issues a note with a principal amount of $480,000, 13% annual interest rate, and a 24-month maturity date on December 31, 2019. Record the journal entries for Bank's Hardware Store for the following transactions. A. Note issuance B. Subsequent interest entry on December 31, 2018 C. Honored note entry at maturity on December 31, 2019. Solution A. Jan. 1. 2018 Notes Receivable: Patel Sales Revenue To record sale in exchange for notes receivable, 24-month maturity, 13% interest rate B Dec 31, 2018 Interest Receivable: Patel Interest Revenue To record interest accumulated after first 12 months Dec 31, 2019 Cash Notes Receivable: Patel Interest Receivable: Patel Interest Revenue To record collection of principal and accumulated interest