CHAPTER 9

Problem 9-1

Required: Prepare journal entries to record the transactions.

Date Account Title Debit Credit

Jan. 1 Notes receivable 500,000

Sales 500,000

Mar. 1 Cash 503,500

Loss on discounting 6,500

Notes receivable 500,000

Interest income 10,000

July 1 No Entry

Problem 9-2

Required: Prepare journal entries to record the transactions assuming any discounting of note
receivable is accounted for as a conditional sale with recognition of a contingent liability.

Date Account Title Debit Credit

Mar. 14 Accounts receivable 2,050,000

Sales 2,050,000

April 7 Notes receivable 2,000,000

Freight out 50,000

Accounts receivable 2,050,000

April 20 Cash 2,001,750

Loss on discounting 8,250

Notes receivable discounted 2,000,000

Interest income 10,000

June 4 Accounts receivable (2,040,000+10,000) 2,050,000

Cash 2,050,000
 Notes receivable discounted 2,000,000

Notes receivable 2,000,000

July 4 Cash 2,070,000

Accounts receivable 2,050,000

Interest income 20,000

Problem 9-3

Required:

a) Prepare journal entries to record the transactions assuming any discounting of note receivable is
accounted for as conditional sale with recognition of a contingent liability.

Date Account Title Debit Credit

April 5 Notes receivable 500,000

Accounts receivable 500,000

April 19 Cash 501,075

Loss on note discounting 1,425

Notes receivable discounted 500,000

Interest income 2,500

May 3 Notes receivable 1,000,000

Accounts receivable 1,000,000

May 16 Cash 995,000

Loss on discounting 5,000

Notes receivable discounted 1,000,000

May 25 Notes receivable 1,500,000

Interest income 4,500

Accounts receivable 1,504,500

June 7 Accounts receivable (510,000+20,000) 530,000

 Cash 530,000

Notes receivable discounted 500,000

Notes receivable 500,000

June 15 Notes receivable 800,000

Sales 800,000

June 18 Cash 532,650

Accounts receivable 530,000

Interest income (530,000x12%15/360) 2,650

b) Prepare the necessary adjustments on June 30.

1. Accrued interest receivable 4,000

Interest income (800,000x12%x15/360) 4,000

Accrued interest in D's note.

2. Notes receivable discounted 1,000,000

Notes receivable 1,000,000

To cancel the contingent liability on B's note. This note matured on May 31. Since there is no notice of
dishonor it is assumed that the said noteis paid on the date of maturity.

Problem 9-4

Date Account Title Debit Credit

May 1 Notes receivable 200,000

Accounts receivable 200,000

Notes receivable 300,000

Accounts receivable 300,000

July 30 Accounts receivable 206,000

Notes receivable 200,000

Interest income (200,000x12%x90/360) 6,000

Aug. 1 Cash 306,075

Loss on note discounting 2,925

Note receivable discounted 300,000

Interest income 9,000

Sept. 1 Notes receivable 132,000

Accounts receivable 120,000

Interest income 12,000

Sept. 28 Cash 210,120

Accounts receivable 206,000

Interest income (206,000x12%x60/360) 4,120

Oct. 1 Notes receivable 500,000

Sales 500,000

Nov. 1 Accounts receivable (318,000+12,000) 330,000

Cash 330,000

Notes receivable discounted 300,000

Notes receivable 300,000

Dec. 30 Cash 515,000

Notes receivable 500,000

Interest income (500,000x12%x90/360) 15,000

Dec. 31 Cash 336,600

Accounts receivable 330,000

Interest income 6,600

Problem 9-5
Required: Prepare journal entries to related to the discounting of note receivable, assuming the
discounting is accounted for as a secured borrowing.

Account Title Debit Credit

1. Cash 5,021,250

Interest expense 28,750

Liability for note receivable discounted 5,000,000

Interest income 50,000

2. Liability for note receiavle discounted 5,000,000

Notes receivable 5,000,000

Problem 9-6

Required: Prepare journal entries to record the transactions.

Date Account Title Debit Credit

Jan. 1 Notes receivable 2,000,000

Land 1,500,000

Gain on sale of land 500,000

April 1 Cash 2,021,000

Interest expense 29,000

Liability for note receivable discounted 2,000,000

Interest income 50,000

Oct. 1 Accounts receivable 2,160,000

Cash (2,150,000+10,000) 2,160,000

Oct. 1 Liability for note receivable discounted 2,000,000

Notes receivable 2,000,000

Dec. 31 Cash 2,224,800

Accounts receivable 2,160,000

Interest income (2,160,000x12%x3/12) 64,800

Problem 9-7

Required: Prepare journal entries to record the transactions on the assumption:

a) The discounting of note receivable is accounted for as a secured borrowing.

Date Account Title Debit Credit

June 1 Notes receivable 5,000,000

Sales 5,000,000

July 1 Notes receivable 6,000,000

Accounts receivable 6,000,000

Cash 5,047,000

Interest expense 3,000

Liability for note receivable discounted 5,000,000

Interest income 50,000

July 16 Cash 6,008,000

Interest expense 16,500

Liability for note receivable discounted 6,000,000

Interest income 25,000

Aug. 30 Liability for note receivable discounted 5,000,000

Notes receivable 5,000,000

30 Accounts receivable 5,170,000

Cash (5,150,000+20,000) 5,170,000

30 Liability for note receivable discounted 5,000,000

Notes receivable 5,000,000

Dec. 30 Cash 5,376,800

Accounts receivable 5,170,000

Interest income (5,170,000x12%x4/12) 206,800

b) The discounting of note receivable is accounted for as conditional sale with recognition of contingent
liability.

Date Account Title Debit Credit

June 1 Notes receivable 5,000,000

Sales 5,000,000

July 1 Notes receivable 6,000,000

Accounts receivable 6,000,000

July 1 Cash 5,047,000

Loss on discounting 3,000

Notes receivable discounted 5,000,000

Interest income 50,000

July 16 Cash 6,008,500

Loss on discounting 16,500

Notes receivable discounted 6,000,000

Interets income 25,000

Aug.30 Notes receivable discounted 6,000,000

Notes receivable 6,000,000

30 Accounts receivable 5,170,000

Cash 5,170,000

30 Notes receivable discounted 5,000,000

Notes receivable 5,000,000

Dec. 30 Cash 5,376,800

Accounts receivable 5,170,000

Interest income 206,800

Problem 9-8

Question 1 Answer C

Principal 500,000

Add: Interest (500,000 x 8%) 40.000

Maturity value 540,000

Less: Discount (540,000 x 10% x 6/12) 27.000

Net proceeds 513.000

Question 2 Answer C

Principal 500,000

Accrued interest receivable (500,000 x 8% x 6/12) 20,000

Carrying amount of note receivable 520.000

Net proceeds 513,000

Carrying amount of note receivable (520.000)

Loss on note receivable discounting (7,000)

Problem 9-9

Question 1 Answer C

Principal 2,000,000

Less: Discount (2,000,000 x 10% x 6/12) 100,000

Net proceeds 1.900.000

Question 2 Answer A

(2,000,000-1,900,000= 100,000)

Problem 9-10

Question 1 Answer A

Principal 4,000,000

Interest (4,000,000 x 12% x 90/360) 120.000

Maturity value 4,120,000

Less: Discount (4,120,000 x 15% x 60/360) (103,000)

Net proceeds 4.017.000

Question 2 Answer B

Principal 4,000,000

Accrued interest receivable (4,000,000 x 12% x 30/360) 40.000

Carrying armount of NR 4.040.000

Net proceeds 4,017,000

Loss on discounting (23.000)

Problem 9-11

Question 1 Answer C

Principal 6,000,000

Add: Interest (6,000,000 x 10% x 6/12) 300,000

 Maturity value 6,300,000

Less: Discount (6,300,000 x 12% x 4/12) (252.000)

Net proceeds 6.048.000

Question 2 Answer C

Principal 6,000,000

Accrued interest (6,000,000 x 10% x 2/12) 100,000

Carrying amount of note receivable 6,100,000

Net proceeds 6,048,000

Carrying amount of note receivable (6,100,000)

Loss on note receivable discounting (52.000)