56
Chapter 2
Accounting for Receivables
AP-18A (
7
)
On January 1, 2016, Beta Company determined that it would not be able to pay the accounts
receivable that was owed to Star Company. Beta Company believed that it would have
sufficient cash one year later, therefore signed a one-year notes receivable for the $10,000
that was owed. The annual interest rate is 9%, payable on July 1 and January 1. Star Company
has a year-end of June 30. On January 1, 2017, Beta Company dishonoured the note because
it went bankrupt. Star Company assessed that the debt will never be collected and decided to
immediately write off the note.
Required
a) Record journal entries for Star Company when the note is signed.
Date
Account Title and Explanation
Debit
Credit
b) Prepare journal entries for the year-end adjustment.
Date
Account Title and Explanation
Debit
Credit
c) Prepare journal entries for the receipt of the first interest payment.
Date
Account Title and Explanation
Debit
Credit
