Q. 4 (Marks: 10)

An inexperienced accountant for Morgan Company made the following incorrect entries.

a. Notes Receivable ............................................................................... 21,600

Accounts Receivable ................................................................. 20,000

Interest Revenue ...................................................................... 1,600

Facts: Accepted a $20,000, 1 year, 8% note from Joe Wood Company for balance due on

account.

b. Accounts Receivable .......................................................................... 20,000

Sales Revenue .......................................................................... 20,000

Facts: Accepted Visa credit card for $20,000; the service fee is 2%.

c. Allowance for Doubtful Accounts ..................................................... 12,300

Notes Receivable ...................................................................... 12,000

Interest Revenue ...................................................................... 300

Facts: M. Adler dishonoured a $12,000, 10%, 3-month note because of bankruptcy. Adler is expected to pay. No interest had been accrued on the note.

Required:

Prepare entries to correct Morgan Company's books based on the facts given. Do not reverse out incorrect entries that were recorded above, but rather prepare journals to correct the account balances so that they reflect the proper amounts. Give brief explanations for your journal entry.