Question

Presented below is information related to Novak Corp., which sells merchandise with terms 2/10, net 60. Novak Corp. records its sales and receivables net. July 1 Novak Corp. sold to Warren Harding Co. merchandise having a sales price of $11,000. 5 Accounts receivable of $14,000 (gross) are factored with Andrew Jackson Credit Corp. without recourse at a financing charge of 9%. Cash is received for the proceeds; collections are handled by the finance company. (These accounts were all past the discount period.) 9 Specific accounts receivable of $14,000 (gross) are pledged to Alf Landon Credit Corp. as security for a loan of $6,500 at a finance charge of 7% of the amount of the loan. The finance company will make the collections. (All the accounts receivable are past the discount period.) Dec. 29 Warren Harding Co. notifies Novak that it is bankrupt and will pay only 20% of its account. Give the entry to write off the uncollectible balance using the allowance method. (Note: First record the increase in the receivable on July 11 when the discount period passed.) Prepare all necessary entries in general journal form for Novak Corp

Answer 1

1-Jul

Dr Accounts Receivable-Warren Harding Co $10,780

Cr Sales $10,780

5-Jul

Dr Cash $12,740

Dr Loss On Sale Of Receivable (Bal) $1,260

Cr Accounts Receivable $13,720

Cr Sales Discount Forfeited $280

9-Jul

Dr Accounts Receivable $280

Cr Sales Discount Forfeited $280

9-Jul

Dr Cash $6,045

Dr Interest Expenses $455

Cr Notes Payable $6,500

11-Jul

Dr Accounts Receivable-Warren Harding Co $220

Cr Sales Discount Forfeited $220

29-Dec

Dr Allowance For Doubtful Debts $8,800

Cr Accounts Receivable-Warren Harding Co $8,800

Step-by-step explanation:

Preparation of all necessary entries in general journal form for Novak Corp

1-Jul

Dr Accounts Receivable-Warren Harding Co $10,780

Cr Sales (11000*98%) $10,780

5-Jul

Dr Cash (14,000*(1-.09)) $12,740

Dr Loss On Sale Of Receivable (Bal) $1,260

($13,720+$280-$12,740)

Cr Accounts Receivable (14,000*98%) $13,720

Cr Sales Discount Forfeited (14,000*2%) $280

9-Jul

Dr Accounts Receivable $280

Cr Sales Discount Forfeited (14,000*2%) $280

9-Jul

Dr Cash $6,045

(6500-455)

Dr Interest Expenses (6500*7%) $455

Cr Notes Payable $6,500

11-Jul

Dr Accounts Receivable-Warren Harding Co $220

Cr Sales Discount Forfeited (11000*2%) $220

29-Dec

Dr Allowance For Doubtful Debts (11,000*80%) $8,800

Cr Accounts Receivable-Warren Harding Co $8,800