Page 405 - Accounting Principles (A Business Perspective)

9. Receivables and payables

July 1 Vance Commercial Properties, Inc., discounted its own USD 90,000, 60-day, non interest-bearing note at
Key Bank. The discount rate is 10 per cent, and the note was dated today.
3 Received a 20-day, 12 per cent note, dated today, from Sox Company in settlement of an account receivable of

USD 36,000.
6 Purchased merchandise from Link Company, USD 288,000, and issued a 60-day, 12 per cent note, dated
today, for the purchase.
8 Sold merchandise to Fan Company, USD 360,000. A 30-day, 12 per cent note, dated today, is received to cover
the sale.
14 Received payment on the Parker Company note dated 2009 June 15.
15 Fixx Company sent a USD 120,000, 30-day, 12 per cent note, dated today, and a check to cover the part of the

old note not covered by the new note, plus all interest expense incurred on the prior note.
19 The note payable dated 2009 May 20, was paid in full.
23 Sox Company dishonored its note of July 3 and sent a check for the interest on the dishonored note and a
new 30-day, 12 per cent note dated 2009 July 23.
30 The Dot Company note dated 2009 May 31, was paid with interest in full.
Prepare dated journal entries for these transactions and necessary July 31 adjusting entries.
Alternate problem F On 2010 November 1, Grand Strand Property Management, Inc., discounted its own
USD 50,000, 180-day, non interest-bearing note at its bank at 18 per cent. The note was paid on its maturity date.
The company uses a calendar-year accounting period.

Prepare dated journal entries to record (a) the discounting of the note, (b) the year-end adjustment, and (c) the
payment of the note.
Beyond the numbers—Critical thinking
Business decision case A Sally Stillwagon owns a hardware store; she sells items for cash and on account.

During 2009, which seemed to be a typical year, some of her company's operating data and other data were as
follows:
Sales:
For cash $1,200,000
On credit 2,200,000
Cost of obtaining credit reports on customers 3,600
Cost incurred in paying a part-time bookkeeper to keep the accounts
receivable subsidiary ledger up to date 12,000
Cost associated with preparing and mailing invoices to customers and
other collection activities 18,000
Uncollectible accounts expense 45,000
Average outstanding accounts receivable balance (on which Stillwagon
estimates she could have earned 10 per cent if it had been invested in
other assets) 180,000
A national credit card agency has tried to convince Stillwagon that instead of carrying her own accounts
receivable, she should accept only the agency's credit card for sales on credit. The agency would pay her two days
after she submits sales charges, deducting 6 per cent from the amount and paying her 94 per cent.
a. Using the data given, prepare an analysis showing whether or not Stillwagon would benefit from switching to

the credit card method of selling on credit.
b. What other factors should she take into consideration?

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