Financial accounting 16th Edition by Jan Williams,Susan Haka,Mark Bettner ,Joseph Carcello

Exercise 56

Notes Receivable
Eastern Supply sells a variety of merchandise to retail stores on account, but it insists that any customer who fails to pay an invoice when due must replace their account receivable with an interest-bearing note.he company adjusts and closes its accounts at December 31.mong the , transactions relating to notes receivable were the following:
Sept. Received from a customer (Party Plus) a nine-month, 10 percent note for $75,000 in settlement of an account receivable due today.
June 1 Collected in full the nine-month, 10 percent note receivable from Party Plus, including interest.
Instructions
a. Prepare journal entries (in general journal form) to record: (1) the receipt of the note on September 1; (2) the adjustment for interest on December 31; and (3)collection of principal and interest on June 1.To better illustrate the allocation of interest revenue between accounting periods, we will assume Eastern Supply makes adjusting entries only atyear-end.)
b. Assume that instead of paying the note on June 1, the customer (Party Plus) had defaulted.ive the journal entry by Eastern Supply to record the default.ssume that Party Plus has sufficient resources that the note eventually will becollected.
c. Explain why the company insists that anycustomer who fails to pay aninvoice when due must replace it with an interest-bearing note.