Lecture Notes 3-4
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Example #1 On June 17, 199A, Ames sold $5,000 worth of merchandise to Bates (N/30). The cost of the goods sold was $3,000. 06/17/9A
A/R-Bates Sales
5,000
Cost of Merchandise Sold Merchandise Inventory
3,000
5,000
3,000
On July 17, 199A Bates requested a 90 day extension of the credit period. Ames granted the extension, but required bates to sign a 90 day 10% promissory note. 07/17/9A
N/R-Bates A/R-Bates
5,000 5,000
Calculate Interest:
Prin. X Rate X 5,000 X 10% X
Time = Interest 90/360= 125
Calculate Maturity Value:
Prin. + 5,000 +
Due Date:
Term of Note # days in month of note (July) - date of note # days of life in July + # days in August + # days in September Due on October
Int. = M.V. 125 = 5,125 90 days 31 17 14 31 30
The note was honored by Bates - record the collection of the note on the due date 10/15/9A
Cash N/R-Bates Interest Revenue
5,125 5,000 125
The note was dishonored by Bates - record the appropriate entry on the due date 10/15/9A
A/R-Bates N/R-Bates Interest Revenue
5,125 5,000 125
If the amount due was expected to be uncollectible 10/15/9A
Allowance for Doubtful Accounts
5,000
75 15
N/R-Bates
5,000
Example #2 On March 11, 199A, Smith sold $9,000 worth of merchandise to Jones (N/30). The cost of the goods sold was $8,000. Jones had no established credit, Smith required that Jones sign a 1 month, 10% note. 03/11/9A
N/R-Jones Sales
9,000
Cost of Merchandise Sold Merchandise Inventory
8,000
9,000
8,000
Calculate Interest:
Prin. X Rate X Time = 9,000 X 10% X 1/12 =
Interest 75
Calculate Maturity Value:
Prin. + 9,000 +
Due Date:
April 11 (one month after March 11)
Int. = M.V. 75 = 9,075
The note was honored by Jones - record the collection of the note on the due date 04/11/9A
Cash N/R-Jones Interest Revenue
9,075 9,000 75
The note was dishonored by Bates - record the appropriate entry on the due date 04/11/9A
A/R-Jones N/R-Jones Interest Revenue
9,075 9,000 75
If the amount due was expected to be uncollectible 04/11/9A
Allowance for Doubtful Accounts N/R-Jones
9,000 9,000
A/R-Bates Sales
5,000
Cost of Merchandise Sold Merchandise Inventory
3,000
5,000
3,000
On July 17, 199A Bates requested a 90 day extension of the credit period. Ames granted the extension, but required bates to sign a 90 day 10% promissory note. 07/17/9A
N/R-Bates A/R-Bates
5,000 5,000
Calculate Interest:
Prin. X Rate X 5,000 X 10% X
Time = Interest 90/360= 125
Calculate Maturity Value:
Prin. + 5,000 +
Due Date:
Term of Note # days in month of note (July) - date of note # days of life in July + # days in August + # days in September Due on October
Int. = M.V. 125 = 5,125 90 days 31 17 14 31 30
The note was honored by Bates - record the collection of the note on the due date 10/15/9A
Cash N/R-Bates Interest Revenue
5,125 5,000 125
The note was dishonored by Bates - record the appropriate entry on the due date 10/15/9A
A/R-Bates N/R-Bates Interest Revenue
5,125 5,000 125
If the amount due was expected to be uncollectible 10/15/9A
Allowance for Doubtful Accounts
5,000
75 15
N/R-Bates
5,000
Example #2 On March 11, 199A, Smith sold $9,000 worth of merchandise to Jones (N/30). The cost of the goods sold was $8,000. Jones had no established credit, Smith required that Jones sign a 1 month, 10% note. 03/11/9A
N/R-Jones Sales
9,000
Cost of Merchandise Sold Merchandise Inventory
8,000
9,000
8,000
Calculate Interest:
Prin. X Rate X Time = 9,000 X 10% X 1/12 =
Interest 75
Calculate Maturity Value:
Prin. + 9,000 +
Due Date:
April 11 (one month after March 11)
Int. = M.V. 75 = 9,075
The note was honored by Jones - record the collection of the note on the due date 04/11/9A
Cash N/R-Jones Interest Revenue
9,075 9,000 75
The note was dishonored by Bates - record the appropriate entry on the due date 04/11/9A
A/R-Jones N/R-Jones Interest Revenue
9,075 9,000 75
If the amount due was expected to be uncollectible 04/11/9A
Allowance for Doubtful Accounts N/R-Jones
9,000 9,000
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