Seeing your success, one of your friends, Greg Kommens, opened a cinnamon roll shop. He wants to buy one of your mixers, but he cannot afford to pay for the mixer for 30 days.

1. Greg gave you a set of his most recent financial statements. What calculations should you make with the data from these statements, and what questions should you ask him after you have analyzed the statements?

How will this information help you decide if you should extend credit to Greg?”

2. Is there an alternative other than extending credit to Greg for 30 days?”
3. “You are thinking seriously about being able to have your customers use credit cards. What are some of the advantages and disadvantages of letting your customers pay by credit card?”

The following transactions occurred in June through August 2021.

June    1           After much thought, you sell a mixer to Greg on credit, terms n/30, for $1,150 (cost of mixer $620).

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

July   31          Greg calls you. He indicates that he is unable to pay today but hopes to have a check for her at the end of the week. You prepare the journal entry to record the dishonoring of the note. You assume you will be paid within a week.

Aug.    7          You receive a check from Greg in payment of his balance owed.

Part A

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

Part B.

When a customer is delinquent on paying a notes receivable, your company has the option to continue to attempt collection or sell the debt to a collection agency. Research the benefits and challenges with each of these options and in a short essay, answer the following questions.

1. What are the benefits and challenges of continuing to attempt collection yourself?
2. What are the benefits and challenges of selling debt to a collection agency?
3. If you had a dishonored notes receivable, which option would you select and why?
4. Would you weight certain benefits or challenges differently when making your selection? How?