Elburn Supply Co. has the following transactions related to notes receivable during the last 2 months of 2014. The company does not make entries to accrue interest except at December 31.
Nov. 1 Loaned $30,000 cash to Manny Lopez on a 12-month, 10% note.
Dec. 11 Sold goods to Ralph Kremer, Inc., receiving a $6,750, 90-day, 8% note.
Dec. 16 Received a $4,000, 180-day, 9% note in exchange for Joe Fernetti’s outstanding accounts receivable.
Dec. 31 Accrued interest revenue on all notes receivable.
A) Journalize the transactions for Elburn Supply Co.
B) Record the collection of the Lopez note at its maturity in 2015.
(a) Interest $545
2. Linhart Co. uses the percentage-of-accounts receivable basis to record bad debts expense. It estimates that 1% of accounts receivable will become uncollectible. Accounts receivable are $450,000 at the end of the year, and the allowance for doubtful accounts has a credit balance of $1,500.
a)Prepare the adjusting journal entry to record bad debts expense for the year.
b)If the allowance for doubtful accounts had a debit balance of $800 instead of a credit balance of $1,500, determine the amount to be reported for bad debts expense.
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