Question

Exercise 7.14 (Algo) Notes and Interest (LO7-7) On August 1, year 1, Hampton Construction received a 4.5 percent, 6-month note recelvable from Dusty Roads, one of Hampton Construction's problem credit customers. Roads had owed $35,300 on an outstanding account receivable. The note receivable was token in settiement of this amount, Assume that Hampton Construction makes adjusting entries for acerued interest revenue once each year on December 31 . 1. Record the receipt of the note on August 1 in settiement of the account receivable. 2. Record accrued interest at December 31 , year 1 . 3. Assume that Dusty Roads pays the note plus accrued interest in full. Record the collection of the principal and interest on Janieary 31. year 2. 4. Assume that Dusty Roads did not make the necessary principal and interest payment on January 3t, year 2. Rather, assume that he defaulted on his obligation. Record the default on January 31 , year 2. a. Joumalize the above four events on the books of Hampton Construction. b. Indicate the effects of each of the four transactions joumalized in part a on the olements of the financial statement shown below. Use the code lesters I for increase, D for decrease, and NE for no effect. Complete this question by entering your answers in the tabs below. Journalize the above four events on the books of Mampton Construction. (It no entry is required for a transactionvevent, select "No fournal entry required" in the first account field. Do not round intermediate calculations and round your final answers to the nearest dollar amount.?

Answer 1

To record the events on the books of Hampton Construction, journal entries need to be made for each transaction: the receipt of the note, accrued interest, collection of principal and interest, and default on the obligation. These entries involve debiting and crediting different accounts accordingly.

Step-by-step explanation:

To record the events on the books of Hampton Construction, we need to journalize each transaction. Here are the journal entries:

1. August 1, year 1: record the receipt of the note in settlement of the account receivable:
   • Debit: Notes Receivable - Dusty Roads, $35,300
   • Credit: Accounts Receivable - Dusty Roads, $35,300
2. December 31, year 1: record accrued interest:
   • Debit: Interest Receivable, calculated amount
   • Credit: Interest Revenue, calculated amount
3. January 31, year 2: record the collection of the principal and interest:
   • Debit: Cash, principal and interest amount
   • Credit: Notes Receivable - Dusty Roads, principal amount
   • Credit: Interest Receivable, interest amount
4. January 31, year 2: record the default on Dusty Roads' obligation:
   • Debit: Bad Debt Expense, principal and interest amount
   • Credit: Allowance for Doubtful Accounts, principal and interest amount
   • Credit: Notes Receivable - Dusty Roads, principal and interest amount
   • Credit: Interest Receivable, interest amount