CH 9 & 10 Review

1. CH 9 & 10 Review

2. 9.1-Notes Payable • What is a note payable? • Short term loan that charges interest • How is Notes Payable Classified? • Liability • Journalize the following transaction: May 15: Signed a 90-day, 10% note, $2000. R34 Journal? Cash Receipts Dr. Cash $2,000 Cr. Notes Payable $2,000

3. May 15: Signed a 90-day, 10% note, $2000. R34 • What is the maturity date? August 13, 2014 • How much interest is charged? $50 • Journalize the Transaction (C88): Journal? • Cash Payments Dr. Notes Payable $2000 Dr. Interest expense $50 Cr. Cash $2050

4. 9.2-Prepaid ExpensesRecording Supplies as an Expense: • Journalize the following transaction September 5. Purchased supplies for cash, $1000. C89 Dr. Supplies Expense $1000 Cr. Cash $1000 On December 31, supplies on hand is $250. Record the adjusting entry: Dr. Supplies $250 Cr. Supplies Expense $250 Why? At the end of the fiscal period, supplies is now considered an asset and the value of supplies should be recorded on the Balance Sheet as a Asset.

5. Recording supplies as an expense (cont.) Record the closing entry Dr. Income Summary $750 Cr. Supplies Expense $750 Why? Temporary accounts are closed, the balance of the supplies expense account is $1,000-$250 Record the Reversing Entry Dr. Supplies Expense $250 Cr. Supplies $250 Why? Since supplies are initially recorded as an expense, there are $250 worth of supplies that could be used in the next fiscal period.

6. 9.3 Accrued Expenses Journalize the following transaction: November 10. Signed 90-day, 10% note, $2000. Dr. Cash $2,000 Cr. Notes Payable $2,000 December 31, record adjusting entry: Dr. Interest Expense $28.33 Cr. Interest Payable $28.33 Why? Because there were 51 days in which interest accrued on this note and was not paid. The interest must be recorded in the fiscal period in which the expense incurred.

7. 9.3 Accrued ExpensesNovember 10. Signed 90-day, 10% note, $2000. Record Closing Entry • Dr. Income Summary $28.33 • Cr. Interest Expense $28.33 Why? Interest Expense is a temporary account Record Reversing Entry • Dr. Interest Payable $28.33 • Cr. Interest Expense $28.33 Why? • This will give close Interest Payable and give Interest Expense a CREDIT balance. When the note is paid, the total interest expense is recorded as a debit. The balance will then reflect the expense of the next fiscal period

8. 9.3 Accrued ExpensesNovember 10. Signed 90-day, 10% note, $2000. Record the payment of the Note • Dr. Notes Payable $2000 • Dr. Interest Expense $50 • Cr. Cash $2050 What is the balance of the Interest Expense account? $21.67 Why? • This is the interest expense for the current fiscal period. $28.33 was recorded in the previous fiscal period.

9. 10.1- Notes Receivable (Cont.) Issuing a Note for a Sale June 19. Accepts a 90-day, 10% note from Shelly Swag, $800 for the sale of computer equipment. NR56 • Dr. Notes Receivable $800 • Cr. Sales $800 Why? • NR is debited because a note was issued instead of charging an account receivable. A/R are typically due in 30 days, in this case, they needed 90 to pay. Sales is credited because merchandise was sold at the time of the transaction.

10. 10.1- Notes Receivable (Cont.) Receiving cash for note • June 19. Accepts a 90-day, 10% note from Shelly Swag, $800 for the sale of computer equipment. NR56 What is the journal entry for the cash receipt of this note? Use Receipt 87 as the source doc. • Date? September 18 • Dr. Cash $820 • Cr. Notes Receivable $800 • Cr. Interest Income $20

11. 10.1- Notes Receivable Issuing a note for an account receivable July 10, accepts a 30-day, 10 % note from Fourman Chap for an extension on his account. $400 NR 22 • Dr. Notes Rec $400 • Cr. Accts. Rec./Fourman Chap $400 Why? • Fourman could not pay the balance on his account, so the business agreed to give a NR and charge interest to give Fourman an opportunity to pay within the next 30 days.

12. 10.1- Notes Receivable (Cont.) Recording a Dishonored Note Receivable • July 10, accepts a 30-day, 10% note from Fourman Chap for an extension on his account. $400 NR 22 Fourman did not honor is note, journalize the transaction. Use Memo 94 • Date: August 9 • Dr. Accts. Rec./Fourman Chap $403.33 • Cr. Notes Receivable $400.00 • Cr. Interest Income $3.33 • Why? • The debt still exists, however, notes cannot be written off like accounts receivable accounts, therefore, the principal and interest is transferred to A/R.

13. 10.1- Notes Receivable (Cont.) Receiving cash for a dishonored note, that was transferred to accounts receivable. • September 15, received cash from Fourman Chap for dishonored NR. Maturity Value $403.33, plus additional interest. R79 How many days is interest charged? • August 9-September 15: 37 • Dr. Cash $407.48 • Cr. Accts. Rec./Fourman Chap $403.33 • Cr. Interest Income $4.15

14. 10-2 Unearned Revenue • Received cash from Ile Neslin, $4,200 for 6 months of rent on August 1. R1. Journalize the transaction • Dr. Cash $4,200 • Cr. Rent Income $4,200 Record the adjusting entry • Dr. Rent Income $700 • Cr. Unearned Rent $700 • Why?Earned revenue ($3,500) and unearned revenue ($700) must be separated. Unearned rent is the amount that will be earned in the next fiscal period. It is considered a liability.

15. 10.2 Unearned Revenue Closing Entry-What account gets closed? • Rent Income Reversing Entry • Dr. Unearned Rent $700 • Cr. Rent Income $700 Why? • Close unearned rent and to create a $700 balance in Rent Income to show the Income that is earned for January.

16. 10.2 Accrued Interest Income December 12. Accepts 60-day 10% note from Mary Ingsaler, for the sale of computer equipment. $300 NR3 • Dr. Notes Receivable $300 • Cr. Sales $300 Record the Adjusting Entry on December 31. • Dr. Interest Receivable $1.58 • Cr. Interest Income $1.58 • Why? • Interest was earned for 19 days during the first fiscal period. It must be recorded in the fiscal period in which interest was earned.

17. December 12. Accepts 60-day 10% note from Mary Ingsaler, for the sale of computer equipment. $300 NR3 • Which account gets closed? • Interest Income • What is the reversing entry? • Dr. Interest Income $1.58 • Cr. Interest Receivable $1.58 • Why? • To close the Interest Receivable account and to create a debit balance in Interest Income. When cash for the note is received, it will include the total interest from the note. The interest will be credited to Interest Income, creating a balance that represents interest earned in the current fiscal period.

18. Journalize the cash receipt of the note. • Feb. 10 • Dr. Cash $305 • Cr. Notes Receivable $300 • Cr. Interest Income $5