Question

december 16 accepted a(n) $12,700, 60 - day, 7% note in granting danny todd a time extension on a past - due account receivable. december 31 made an adjusting entry to record the accrued interest on the todd note. year 2 february 14 received todds payment of principal and interest on the note dated december 16. march 2 accepted a(n) $7,500, 7%, 90 - day note in granting a time extension on the past - due account receivable from midnight company. march 17 accepted a $3,800, 30 - day, 7% note in granting ava privet a time extension on a past - due account receivable. april 16 privet dishonored the note. may 31 midnight company dishonored its note. august 7 accepted a(n) $8,350, 90 - day, 10% note in granting a time extension on the past - due account receivable of mulan company. september 3 accepted a $3,410, 60 - day, 10% note in granting noah carson a time extension on a past - due account receivable. november 2 received payment of principal plus interest from carson for the september 3 note. november 5 received payment of principal plus interest from mulan for the august 7 note. december 1 wrote off the privet account against the allowance for doubtful accounts. complete this question by entering your answers in the tabs below. required 1a required 1b required 1c required 1d required 2 use those calculated values to prepare your journal entries for year 2 transactions. view transaction list journal entry worksheet received todds payment of principal and interest on the note dated december 16. note: enter debits before credits.

Explanation:

Step1: Calculate interest on Todd's note

The principal of Todd's note is $P = 12700$, the annual - interest rate $r=7\%=0.07$, and the time $t$ from December 16 to February 14. December has 31 days, so from December 16 to December 31 is $31 - 16=15$ days, January has 31 days, and February 1 - 14 is 14 days. So $t=\frac{15 + 31+14}{360}=\frac{60}{360}$ (using a 360 - day year for simple - interest calculations in business). The simple - interest formula is $I = Prt$. So $I=12700\times0.07\times\frac{60}{360}\approx148.17\approx148$.

Step2: Prepare journal entry for February 14

When receiving payment of principal and interest:

• Debit Cash for the total amount received, which is the principal plus interest, $12700 + 148=12848$.
• Credit Notes Receivable - D. Todd for the principal amount of $12700$.
• Credit Interest Revenue for the interest amount of $148$.

The journal entry for February 14:

Date	General Journal	Debit	Credit
	Notes Receivable - D. Todd		12700
	Interest Revenue		148

For the other transactions:

March 2

• Debit Notes Receivable - Midnight Company for $7500$ (principal of the note).
• Credit Accounts Receivable - Midnight Company for $7500$.

March 17

• Debit Notes Receivable - Ava Privet for $3800$ (principal of the note).
• Credit Accounts Receivable - Ava Privet for $3800$.

April 16 (Privet dishonored the note)

• Debit Accounts Receivable - Ava Privet for $3800\times(1 + 0.07\times\frac{30}{360})$

$=3800\times(1+\frac{3800\times0.07\times30}{360})$
$=3800+22.11 = 3822.11$

• Credit Notes Receivable - Ava Privet for $3800$
• Credit Interest Revenue for $22.11$

May 31 (Midnight Company dishonored its note)

First, calculate the interest on the Midnight Company note. $t=\frac{90}{360}$, $I = 7500\times0.07\times\frac{90}{360}=131.25$

• Debit Accounts Receivable - Midnight Company for $7500 + 131.25=7631.25$
• Credit Notes Receivable - Midnight Company for $7500$
• Credit Interest Revenue for $131.25$

August 7

• Debit Notes Receivable - Mulan Company for $8350$ (principal of the note).
• Credit Accounts Receivable - Mulan Company for $8350$.

September 3

• Debit Notes Receivable - Noah Carson for $3410$ (principal of the note).
• Credit Accounts Receivable - Noah Carson for $3410$.

November 2 (Received payment from Carson)

Calculate the interest on Carson's note. $t=\frac{60}{360}$, $I = 3410\times0.1\times\frac{60}{360}\approx56.83$

• Debit Cash for $3410+56.83 = 3466.83$
• Credit Notes Receivable - Noah Carson for $3410$
• Credit Interest Revenue for $56.83$

November 5 (Received payment from Mulan)

Calculate the interest on Mulan's note. $t=\frac{90}{360}$, $I = 8350\times0.1\times\frac{90}{360}=208.75$

• Debit Cash for $8350 + 208.75=8558.75$
• Credit Notes Receivable - Mulan Company for $8350$
• Credit Interest Revenue for $208.75$

December 1 (Write - off Privet account)

• Debit Allowance for Doubtful Accounts for $3822.11$
• Credit Accounts Receivable - Ava Privet for $3822.11$

Answer:

The journal entries for all Year 2 transactions are shown above. Each entry is based on the principles of accounting for notes receivable, interest revenue, and write - offs of accounts. For example, when a note is accepted, we debit Notes Receivable and credit Accounts Receivable. When interest is accrued or received, we calculate the interest using the simple - interest formula $I = Prt$ and record the appropriate debit and credit to Interest Revenue. When a note is dishonored, we reclassify the note and its accrued interest back to Accounts Receivable, and when an account is written off, we use the Allowance for Doubtful Accounts.