QUESTION 3(14 marks)

Portland Company sells much of its merchandise on credit with terms of n/30. Customers sometimes ask for an extension of credit beyond 30 days, in which case Portland Company requires that the customers give an interest-bearing promissory note. A sequence transaction with a customer, Macy Nunn, is as follows:

2020

Oct10Sold merchandise to Macy Nunn for $4,500 and received $1,000 cash and the balance on account with terms: 2/10, n30.FOB shipping point

Nov9On this date, received a 12%, 90-day note from Macy Nunn as payment of her accounts receivable dated October 10, with management's approval.

2021

Feb 7On this maturity date Macy Nunn dishonored/defaulted on her note. The full amount was debited to an accounts receivable and a clerk was assigned to call up Nunn on expected date of payment.

April 6Macy Nunn paid the dishonored note dated November 9 plus an additional $100 as interest compensation to Portland Company for the late payment.

(Portland Company's financial year ends on December 31 each year.)

Required:

(Use 360 days for interest calculation and round the interest calculation to the nearest dollar, if any.Explanation is not required)

a)Prepare journal entry to record the sale of merchandise on Oct 10(3 marks)

b)Prepare journal entry to record the payment of accounts receivable on Nov 9. (2 marks)

c)Prepare adjusting entry to record the accrued interest earned for the year ended December 31, 2020.(2 marks)

d)Prepare journal entry to record the dishonored note on Feb 7, 2021 (Assume 28 days in February)(4 marks)

e)Prepare journal entry to record the receipt of payment and compensation on April 6, 2021(3 marks)