On May 2 McLain Company lends 26800 4aturity date November 2, Chang indicated th

Question

On May 2 McLain Company lends 26800 4aturity date November 2, Chang indicated that it cannot pay.
prepare the entry to record the issuance if the note
prepare the entry to record the dishonor of the note assuming McClain expects collection will occur.
prepare the entry to record the dishonor of the note assuming McClain company doesn't expect collection in the future.

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Explanation / Answer

Answer:-

Prepare the entry to record the issuance of the note.

Date - 02/MaY

Notes Receivable debit $26,800
Cash Credit $26,800

2. Prepare the entry to record the dishonor of the note, assuming that McLain Company expects collection will occur.

Date - 02/November

Accounts Receivable Debit $26,800

Notes Receivable Credit $26,800

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

Date - 02/November

Allowance for Doubtful Accounts Debit $26,800
Notes Receivable Credit $26,800

General Note :- ( Not a Part Of Answe but for better understanding read this )

the above question not provide us the details of interest on notes receivable so , let us assume that interest on note receivables is 10% , 6Months Maturity.

1.Prepare the entry to record the issuance of the note.

Date - 02/ May

Notes Receivable debit 26800
Cash Credit 26800

2.Prepare the entry to record the dishonor of the note, assuming that McLain Company expects collection will occur.

02/ November

Accounts Receivable Debit $ 28,140 ( 26800+1340)
Interest Revenue Credit ($26, 800× 10% × 1/2) = $1,340
Notes Receivable Credit $ 26,800

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

Date -02/ November

Allowance for Doubtful Accounts Debit 26800
Notes Receivable Credit 26800

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