On May 2, Kleinsorge Company lends $7,800 to Everhart, Inc., issuing a 6-month,

Question

On May 2, Kleinsorge Company lends $7,800 to Everhart, Inc., issuing a 6-month, 8% note. At the maturity date, November 2, Everhart indicates that it cannot pay

Prepare the entry to record the issuance of the note.

Prepare the entry to record the dishonor of the note, assuming that Kleinsorge Company expects collection will occur. (For multiple debit/credit entries, list amounts from largest to smallest eg 10, 5, 3, 2. Round answers to 0 decimal places, e.g. 125.)

Prepare the entry to record the dishonor of the note, assuming that Kleinsorge Company does not expect collection in the future.

Explanation / Answer

1.

Notes receivable ---------- 7800
Cash ------------------------------ 7800

2.

Interest = $7,800 x 8% x 6/12 = $312

Accounts receivable-----------------8112
Notes receivable---------------------------7800
Interest revenue----------------------------312

3.

Allowance for doubtful accounts-----7800
Notes receivable-----------------------------7800

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