Analysis of notes receivable and related accounts

You are examining the financial statements of Merlyn, In., for the year ended December 31,
2015. Your analysis of the 2015 entries in the Notes Receivable account follows:

Merlyn, Inc.
Analysis of Notes Receivable
For the Year Ended December 31,2015

Date
2015 Debit Credit
Jan. 1 Balance Forwarded P118,000
Received P25,000 6% note due
10/29/15 from Anna whose trade
account was past due.

Feb. 28 Discounted Anna note P24,960

Mar. 31 Received non-interest-bearing demand 6,200

note from Julia, the corporation’s
treasurer for a loan

Aug. 30 Received principal and interest due from 34,200

Robinson in accordance with agreement,
two principal payments in advance.

Sept. 4 Paid protest fee on note dishonored 500

by Pepper.

Nov. 1 Received check dated 2/1/16 in 8,120

settlement of Tripper note. The check
was included in cash on hand 12/31/15

Nov. 4 Paid protest fee and maturity value of 26,031

Anna note to bank. Note discounted
2/28/15 was dishonored.

Dec. 27 Accepted equipment with a fair market 24,000

value of P24,000 in full settlement
from Anna
Dec. 31 Received check dated 1/2/16 from 6,200
Julia in payment of 3/31/15 note. (The
Cash was included in petty cash until
1/2/16 when it was returned to Julia in
exchange for new demand note for the
same amount.)

Dec. 31 Received principal and interest on

Pepper note 42,437

Dec. 31 Accrued interest on Robinson note 1,200

P151,931 P139,917

The following information is available:

(1) Balances at January 1, 2015, were a debit of P1,400 in the Accrued Interest Receivable
account and accredit of P400 in the Unearned Interest Income account. The P118,000
debit in the Note Receivable account consisted the following three notes:

Robinson note of 8/31/08 payable in annual

installments of P10,000 principal plus accrued P70,000
interest at 6% each August 31

Tripper note discounted to Merlyn, Inc. at 6%

11/1/14 due 11/1/15 8,000

Pepper note for P40,000 plus 6% interest dated

12/31/14 due on 9/1/15 40,000

(2) No entries were made during 2015 to the Accrued Interest Receivable of the Unearned
Interest Income account and only one entry for a credit of P1,200 on December 31,
appeared in the Interest Income account.

(3) All notes were from the trade customers unless otherwise indicated.

(4) Debits and credits affecting Notes Receivables were correctly recorded unless the facts
indicate otherwise.

REQUIRED:
 1. Determine the following as of and for the year ended December 31,2015:
a. Notes receivable- trade
b. Interest income
2. Adjusting entries as of December 31,2015

SOLUTION:.
Requirement No. 2
1/1 Notes receivable 25,000
Accounts receivable 25,000

2/28 Notes receivable 24,960

Loss on discounting (P25,250 - P24,960) 290
Notes receivable - discounted 25,000
Interest income (P25,000 x .06 x 2/12) 250

3/29 Notes receivable - Officers 6,200

Notes receivable 6,200

8/30 Notes receivable 4,200

Interest receivable 1,400
Interest income 2,800

9/4 Notes receivable dishonored 500

Notes receivable 500

Notes receivable dishonored 40,000

Notes receivable 40,000

11/1 Notes receivable 8,120

Cash 8,120

11/4 Notes receivable dishonored 26,031

Notes receivable 26,031

Notes receivable discounted 25,000

Notes receivable 25,000

12/27 Notes receivable 24,000

Loss on settlement of NR 2,031
Notes receivable dishonored 26,031

12/31 Notes receivable 6,200

Petty cash fund 6,200
12/31 Notes receivable 42,437
Notes receivable dishonored 40,500
Interest income 1,937

12/31 Interest receivable (P40,000 x 6% x 4/12) 800

Interest income 400
Notes receivable 1,200

12/31 Interest receivable (P8,000 x 6% x 2/12) 80

Interest income 80

12/31 Unearned interest income 400

Interest income 400

Requirement No. 1.a

Unadjusted trade NR 12,014
Add (Deduct) adjustments:
1/1 25,000
2/28 24,960
3/29 (6,200)
8/30 4,200
9/4 (40,500)
11/1 8,120
11/4 (26,031)
(25,000)
12/27 24,000
12/31 6,200
12/31 42,437
12/31 (1,200)
Adjusted trade NR, 12/31/12 48,000

Composition:
Robinson (P70,000 - P30,000) 40,000
Tripper (received PDC on 11/1) 8,000
Adjusted notes receivable-trade, 12/31/12 48,000

Notes:
1) NR from Pepper - collected on 12/31/12
2) NR from Anna - accepted equipment in full settlement on 12/27/12
3) NR from Julia - non-trade

Requirement No. 1.b

Robinson:
Jan. to Aug. (P70,000 x .06 x 8/12) 2,800
Sept. to Dec. (P40,000 x .06 x 4/12) 800 3,600
Tripper (P8,000 x .06 x 12/12) 480
Pepper (P42,437 - P40,500) 1,937
Anna (P25,000 x .06 x 2/12) 250
Julia (non-interest bearing) -
Total interest income - 2012 6,267