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:

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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