The Following Series of Transactions Occurred During Year 1 and Year

question 148

Essay

The following series of transactions occurred during Year 1 and Year 2, when Linwood Co. sold merchandise to John Moore. Linwood's annual accounting period ends on December 31.
10/01/Yr 1 Sold $12,000 of merchandise to John Moore, terms 2/10, n/30.
11/15/Yr 1 Moore reports that he cannot pay the account until early next year. He agrees to exchange the account for a 120-day, 12% note receivable.
12/31/Yr 1 Prepared the adjusting journal entry to record accrued interest on the note.
03/15/Yr 2 Linwood receives a check from Moore for the maturity value (with interest) of the note.
03/22/Yr 2 Linwood receives notification that Moore's check is being returned for nonsufficient funds (NSF).
12/31/Yr 2 Linwood writes off Moore's account as uncollectible.
Prepare Linwood Co.'s journal entries to record the above transactions. The company uses the allowance method to account for its bad debt expense.

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Definitions:

Defective

Refers to a flaw or imperfection in a product or service that makes it unsafe or unsuitable for its intended use.

Dishonors

The refusal or inability of a bank to pay a check or draft when presented for payment.

Insufficient Funds

A situation where an account does not have enough money to cover transactions.

Liable

Liable means responsible by law; legally answerable.