1. Notes Receivable Answer: June 14 Total days in note 90 days
Number of days in March 31
Issue date of note March 16
Remaining days in March –15 days
75 days
Number of days in April –30 days
45 days
Number of days in May –31 days
Residual days in June 14 days
Answer: June 14

2. Notes Receivable
The amount that is due at the maturity or due date is called the maturity value.

3. Notes Receivable
Received a $6,000, 12%, 30-day note dated November 21, 2006 in settlement of the account of W. A Bunn Co.

4. Principal x Rate x Time = Interest Maturity Value Calculation
Notes Receivable
Interest Calculation
Principal x Rate x Time = Interest
$6,000 x 12% x 30/360 = $60.00
Maturity Value Calculation
Principal + Interest = Maturity Value
$6,000 + $60.00 = $6,060.00

5. Accounting for Notes Receivable
Nov. 21 Notes Receivable
Sales
Received 30-day, 12% note dated November 21, 2006.
A $6, day, 12% note dated November 21 is received from W. A Bunn Company in exchange for merchandise.

6. Accounting for Notes Receivable
Dec. 21 Cash
Notes Receivable
Interest Revenue
Received principal and interest on matured note.
On December 21, when the note matures, the firm receives $6060 from W. A. Bunn Company ($6,000 plus $60 interest).

7. Accounting for Notes Receivable
Dec. 21 Accounts Receivable—Bunn Co
Notes Receivable
Interest Revenue
To record dishonored note and interest.
If W. A. Bunn Company fails to pay the note on the due date, it is considered a dishonored note receivable. The note and interest are transferred to the customer’s account.

8. Accounting for Notes Receivable
Dec. 1 Notes Receivable
Accounts Receivable—Crawford
Company
Received note in settlement of account.
A 90-day, 12% note dated December 1, 2006, is received from Crawford Company to settle its account, which has a balance of $4,000.

9. Accounting for Notes Receivable
Dec. 31 Interest Receivable
Interest Revenue
Adjusting entry for accrued interest.
Assuming that the accounting period ends on December 31, an adjusting entry is required to record the accrued interest of $40 ($4,000 x 0.12 x 30/360).

10. Accounting for Notes Receivable
Mar Cash
Notes Receivable
Interest Receivable
Interest Revenue
$4,000 x 0.12 x 60/360
Received payment on note and interest.
On March 1, 2004, $4,120 is received for the note ($4,000) and interest ($120).

11. Receivables on the Balance Sheet

12. Crabtree Co. Balance Sheet December 31, 2006
Assets
Current assets:
Cash $119,500
Notes receivable 250,000
Accounts receivable $445,000
Less allowance for
doubtful accounts 15, ,000
Interest receivable 14,500
Merchandise inventory 714,000
Highlighted items are receivables

13. Financial Analysis and Interpretation
Accounts Receivable Turnover
Net sales
Average accounts receivable

14. Accounts Receivable Turnover
Net sales on account $36,000,000 $32,500,000
Accounts receivable (net):
Beginning of year $ 1,080,000 $1,050,000
End of year 1,220,000 1,080,000
Total $2,300,000 $2,130,000
Average $1,150,000 $1,115,000
Accounts receivable turnover times times
$36,000,000
$1,150,000
$32,500,000
$1,115,000
Use: To assess the efficiency in collecting receivables and in the management of credit.

15. Number of Days’ Sales in Receivables
Accounts receivable, end of year
Average daily sales
Accounts receivable, end of year
Average daily sales on account
$1,220,000
($36,000,000 ÷ 365 days)
=12.4 days
Use: To assess the efficiency in collecting receivables and in the management of credit.

16. Chapter 8
The End