177 The following series of transactions occurred during Year 1 and Year 2, when
ID: 2570902 • Letter: 1
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177 The following series of transactions occurred during Year 1 and Year 2, when Foxworth Co. sold . merchandise to Kevin Lewis. Foxworth's annual accounting period ends on December 31 10/01Yr 1 Sold $12,000 of merchandise to K. Lewis, terms 2/10, n/30. Lewis reports that he cannot pay the account until early next year. He agrees to exchange the account for a 120-day, 12% note receivable. 11/15/Yr1 Prepared the adjusting journal entry to record accrued interest on the note 12/31/Yr 1 Foxworth receives a check from Lewis for the maturity value (with interest) of the note. 03/15/Yr2 Foxworth receives notification that Lewis' check is being returned or nonsufficient funds (NSF) 03/22/Yr2 12/31/Yr 2 Foxworth writes off Lewis' account as uncollectible. Prepare Foxworth Co.'s journal entries to record the above transactions. The company uses the allowance method to account for its bad debt expense.Explanation / Answer
Journal Entry Date Particulars Dr. Amt. Cr. Amt. 10/01/Yr 1 Accounts Receivable Dr. 12,000 To Sales 12,000 (Record the sales to K. Lewis) 11/15/Yr 1 Notes Receivable Dr. 12,000 To Accounts Receivable 12,000 (Record the notes receivable issued) 12/31/Yr 1 Interest Receivable Dr. 184 $12,000 X 12% X 46/360 To Interest Revenue 184 (Record the interest accrued on Notes) 3/15/Yr 2 Cash Dr. 12,480 To Notes Receivable 12,000 To Interest Revenue 296 $12,000 X 12% X 74/360 To Interest Receivable 184 (Record the check received) 3/22/Yr 2 Accounts Receivable Dr. 12,480 To Cash 12,480 (Record the cheque return) 12/31/ Yr 2 Allowance for Doubtful Accounts Dr. 12,480 To Accounts Receivable 12,480 (Record the accounts receivable written off)
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