One of Mei-lings friends, Curtis Lesperance, runs a coffee shop where he sells specialty coffees and prepares and sells muffins and cookies. He is eager to buy one of Mei-lings fine European mixers, which would enable him to make larger batches of muffins and cookies. However, Curtis cannot afford to pay for the mixer for at least 30 days. He asks Mei-ling if she would be willing to sell him the mixer on credit.

Mei-ling comes to you for advice. She asks the following questions.

1. Curtis has given me a set of his most recent financial statements. What calculations should I make with the data from these statements, and 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. Is there an alternative other than extending credit to Curtis for 30 days?

3. I am thinking seriously about being able to have my customers use credit cards. What are some of the advantages and disadvantages of letting my customers pay by credit card?

The following transactions occurred in June through August 2016.

June 1 After much thought, Mei-ling sells a mixer to Curtis on credit, terms n/30, for NT$1,150 (cost of mixer NT$620).

30 Curtis calls Mei-ling. He is unable to pay the amount outstanding for another month, so he signs a one-month, 8.25% note receivable.

July 31 Curtis calls Mei-ling. He indicates that he is unable to pay today but hopes to have a check for her at the end of the week. Mei-ling prepares the journal entry to record the dishonoring of the note. She assumes she will be paid within a week.

Aug. 7 Mei-ling receives a check from Curtis in payment of his balance owed.

Instructions

(a) Answer Mei-lings questions.

(b) Prepare journal entries for the transactions that occurred in June, July, and August. (The company uses a perpetual inventory system). Round to nearest dollar.