1. Chapter 8 Receivables Part II Notes receivables Wenbin Long 龙文滨 Accounting Faculty 会计学院

2. Negotiable Instruments Law in China: What is a note? There are four types of notes: checks, banker's bills, commercial bills, and cashier’s orders.

3. What is a note? In accounting when business receives checks, banker’s bills and the cashier’s orders, the accounting entry is as follows: Dr. Cash at Bank Cr. Sales / Accts Receivable “notes receivable” is used only when the business receives the commercial bills.

4. What is a note? A promissory note is a written document containing a promise to pay a sum of money on demand or at a definite time 。

5. What is a note? = × ？

13. 4 a specific amount of money (principal) 4 to a specific person or company (payee) 4 at a specific place 4 on a specific date or upon demand 4 plus interest at a specific percentage of the principal (face) amount per year 4 Signature of the maker (payer) Characteristics of Notes Receivable

14. Notes Receivable $_____________ Fresno, California______________20___ March 16 06 ________________ _AFTER DATE _______ PROMISE TO PAY TO Ninety days We THE ORDER OF ____________________________________________ Judson Company _________________________________________________DOLLARS Two thousand five hundred 00/100--------------------------- PAYABLE AT ______________________________________________ City National Bank VALUE RECEIVED WITH INTEREST AT ____ 10% 2,500.00 NO. _______ DUE___________________ 14 June 14, 2006 TREASURER, WILLIARD COMPANY H. B. Lane PayeePayee MakerMaker PrincipalPrincipal PrincipalPrincipal Payable Place Due Date

15. [Case 1] Due date determination for a 90-day note dated March 16. a. Determination of the Due Date

16. Answer: June 14 [Case 1] Due date determination for a 90-day note dated March 16. 17 IIIIIIIIIIIIIII 31 IIIIIIIIIIIIIIIIIIIIIIIIIIIIIII 131 IIIIIIIIIIIIIIIIIIIIIIIIIIIIII 301 IIIIIIIIIIIIII 114 15303114 +++ MARCHAPRILMAYJUNE Total of 90 days

17. [Case 2] On Nov.21, received a $6,000, 30- day, 12% note from Bunn Co to settle the accounts receivable which was past due. b. Interest and Maturity Value Calculation

18. Principal + Interest = Maturity Value $6,000 + $60.00 = $6,060.00 Principal x Rate x Time = Interest $6,000 x (12%/360) x 30 = $60.00 Interest Calculation Maturity Value Calculation [Case 2] On Nov.21, received a $6,000, 30- day, 12% note from Bunn Co to settle the accounts receivable which was past due.

19. Accounting for Notes Receivable DateDescriptionDebitCredit DateDescriptionDebitCredit Nov. 21 Notes Receivable6,000 Accts. Receivable - Bunn Co.6,000 [Case 2] Received a $6,000,30-day, 12% note from Bunn Co to settle the accounts receivable which was past due.

20. Accounting for Notes Receivable DateDescriptionDebitCredit DateDescriptionDebitCredit Nov. 21 Notes Receivable6,000 Accts. Receivable - Bunn Co.6,000 [Case 2] Received a $6,000,30-day, 12% note from Bunn Co to settle the accounts receivable which was past due. 22 IIIIIIIIIIIIIII 30 IIIIIIIIIIIIIIIIIIIIIIIIIIIIII 211 9 + Nov.Dec. Total of 30 days

21. Accounting for Notes Receivable DateDescriptionDebitCredit DateDescriptionDebitCredit Collected amount due on note dated November 21. Nov. 21 Dec. 21 Notes Receivable6,000 Accts. Receivable - Bunn Co.6,000 [Case 2] Received a $6,000,30-day, 12% note from Bunn Co to settle the accounts receivable which was past due. Cash 6,060 Notes Receivable 6,000 Interest Revenue 60 Principal + Interest = Maturity Value $6,000 + ($6,000 x 12% x 30 / 360) = $6,060

22. Accounting for Notes Receivable DateDescriptionDebitCredit DateDescriptionDebitCredit The note is proved to be dishonored. Nov. 21 Dec. 21 Notes Receivable6,000 Accts. Receivable - Bunn Co.6,000 Accts. Receivable – Bunn Co. 6,060 Notes Receivable 6,000 Interest Revenue 60 Principal + Interest = Maturity Value $6,000 + ($6,000 x 12% x 30 / 360) = $6,060 [Case 2] Received a $6,000,30-day, 12% note from Bunn Co to settle the accounts receivable which was past due.

23. Accounting for Notes Receivable DateDescriptionDebitCredit DateDescriptionDebitCredit Nov. 21 Notes Receivable6,000 Accts. Receivable - Bunn Co.6,000 [Case 3] Received a $6,000,90-day, 12% note from Bunn Co to settle the account receivable which was past due.

24. Accounting for Notes Receivable DateDescriptionDebitCredit DateDescriptionDebitCredit Nov. 21 Notes Receivable6,000 Accts. Receivable - Bunn Co.6,000 [Case 3] Received a $6,000,90-day, 12% note from Bunn Co to settle the account receivable which was past due. 22 IIIIIIIIIIIIIII 30 IIIIIIIIIIIIIIIIIIIIIIIIII 311 9 + IIIIIIIIIIIIIIIIIIIIIIIIII 131 IIIIIIIIIIIIII 119 3119 + Nov.Dec. Jan.Feb. Total of 90 days +

25. Accounting for Notes Receivable DateDescriptionDebitCredit DateDescriptionDebitCredit Record the accrued interest earned. Nov. 21 Dec. 31 Notes Receivable6,000 Accts. Receivable - Bunn Co.6,000 [Case 3] Received a $6,000,90-day, 12% note from Bunn Co to settle the account receivable which was past due.

26. Accounting for Notes Receivable DateDescriptionDebitCredit DateDescriptionDebitCredit Record the accrued interest earned. Nov. 21 Dec. 31 Notes Receivable6,000 Accts. Receivable - Bunn Co.6,000 [Case 3] Received a $6,000,90-day, 12% note from Bunn Co to settle the account receivable which was past due. 22 IIIIIIIIIIIII 30 IIIIIIIIIIIIIIIIIIIIIIIIIIIIII 311 9 + Nov.Dec. Total of 40 days

27. Accounting for Notes Receivable DateDescriptionDebitCredit DateDescriptionDebitCredit Record the accrued interest earned. Nov. 21 Dec. 31 Notes Receivable6,000 Accts. Receivable - Bunn Co.6,000 Interest Receivable 80 Interest Revenue 80 Interest earned = ($6,000 x 12% x 40 / 360) = 80 [Case 3] Received a $6,000,90-day, 12% note from Bunn Co to settle the account receivable which was past due. Received principle and interest on matured note. Feb. 19 Maturity Value = $6,000 + ($6,000 x 12% x 90 / 360) = $6,180

28. Accounting for Notes Receivable DateDescriptionDebitCredit DateDescriptionDebitCredit Record the accrued interest earned. Nov. 21 Dec. 31 Notes Receivable6,000 Accts. Receivable - Bunn Co.6,000 Interest Receivable 80 Interest Revenue 80 [Case 3] Received a $6,000,90-day, 12% note from Bunn Co to settle the account receivable which was past due. Received principle and interest on matured note. Feb. 19 Cash 6,180 Notes Receivable 6,000 Maturity Value = $6,000 + ($6,000 x 12% x 90 / 360) = $6,180

29. Accounting for Notes Receivable DateDescriptionDebitCredit DateDescriptionDebitCredit Record the accrued interest earned. Nov. 21 Dec. 31 Notes Receivable6,000 Accts. Receivable - Bunn Co.6,000 Interest Receivable 80 Interest Revenue 80 [Case 3] Received a $6,000,90-day, 12% note from Bunn Co to settle the account receivable which was past due. Received principle and interest on matured note. Feb. 19 Cash 6,180 Notes Receivable 6,000 Maturity Value = $6,000 + ($6,000 x 12% x 90 / 360) = $6,180 22 IIIIIIIIIIII 30 IIIIIIIIIIIIIIIIIIIIIIII 311 9 + Nov.Dec. Jan.Feb. IIIIIIIIIIIIIIIIIIIIIIIII 131 IIIIIIIIIIIIII 119 3119 ++ Total of 40 days Total of 50 days

30. Accounting for Notes Receivable DateDescriptionDebitCredit DateDescriptionDebitCredit Record the accrued interest earned. Nov. 21 Dec. 31 Notes Receivable6,000 Accts. Receivable - Bunn Co.6,000 Interest Receivable 80 Interest Revenue 80 [Case 3] Received a $6,000,90-day, 12% note from Bunn Co to settle the account receivable which was past due. Received principle and interest on matured note. Feb. 19 Cash 6,180 Notes Receivable 6,000 22 IIIIIIIIIIII 30 IIIIIIIIIIIIIIIIIIIIIIII 311 9 + Nov.Dec. Jan.Feb. IIIIIIIIIIIIIIIIIIIIIIIII 131 IIIIIIIIIIIIII 119 3119 ++ Total of 40 days Total of 50 days Interest earned = ($6,000 x 12% x 50 / 360) = 100 Interest Revenue 100 Interest Receivable 80

31. Accounting for Notes Receivable DateDescriptionDebitCredit DateDescriptionDebitCredit Record the accrued interest earned. Nov. 21 Dec. 31 Notes Receivable6,000 Accts. Receivable - Bunn Co.6,000 Interest Receivable 80 Interest Revenue 80 [Case 3] Received a $6,000,90-day, 12% note from Bunn Co to settle the account receivable which was past due. Received principle and interest on matured note. Feb. 19 Cash 6,180 Notes Receivable 6,000 Interest earned = ($6,000 x 12% x 50 / 360) = 100 Interest Revenue 100 Interest Receivable 80

32. Exercise 8-18 The following selected transactions were completed by Cassidy Co., a supplier of elastic bands. 2005 Dec.13. Received from Visage Co., on account, a $25,000, 120- day, 6% note dated December 13. Dec.31. Recorded an adjusting entry for accrued interest on the note of December 13. 31. Closed the interest revenue account. The only entry in this account originated from the December 31 adjustment. 2006 Apr. 12. Received payment of note and interest from Visage Co. Journalize the transactions.

33. Solution The following selected transactions were completed by Cassidy Co., a supplier of elastic bands. 2005 Dec.13. Received from Visage Co., on account, a $25,000, 120- day, 6% note dated December 13. Dec. 13 Dr. Notes Receivable 25,000 Cr. Accounts Receivable 25,000

34. Solution The following selected transactions were completed by Cassidy Co., a supplier of elastic bands. 2005 Dec.13. Received from Visage Co., on account, a $25,000, 120- day, 6% note dated December 13. Dec.31. Recorded an adjusting entry for accrued interest on the note of December 13. Dec. 31 Interest earned = 25,000*6%*(31-14+1)/360 = 75 Dr. Interest receivable 75 Cr. Interest Revenue 75

35. Solution The following selected transactions were completed by Cassidy Co., a supplier of elastic bands. 2005 Dec.13. Received from Visage Co., on account, a $25,000, 120- day, 6% note dated December 13. Dec.31. Recorded an adjusting entry for accrued interest on the note of December 13. 31. Closed the interest revenue account. The only entry in this account originated from the December 31 adjustment. Dec. 31 Dr. Interest Revenue 75 Cr. Income Summary 75

36. Solution The following selected transactions were completed by Cassidy Co., a supplier of elastic bands. 2006 Apr. 12. Received payment of note and interest from Visage Co. Apr.12 Maturity Value = 25000+25000*6%*120/360 = 25,500 Interest earned = 25000*6%*(31+28+31+12)/360=425 Dr. Cash 25,500 Cr. Notes Receivable 25,000 Interest Receivable 75 Interest Revenue 425