Journalize the following transactions for Tammy Company:
Sept. 1 Sold $3,500 of merchandise to Jim on account
Oct. 1 Exchanged Jim’s account receivable for a fourmonth, 8% note for $3,500
Dec. 31 Recorded accrued interest on Jim’s note
Feb. 1 Jim paid off his note with interest (round to
nearest dollar)
To journalize the transactions for Tammy Company, you need to follow these steps:
1. Analyze each transaction to determine which accounts are affected and the amounts involved.
2. Identify the accounts to be debited and credited for each transaction.
3. Determine the amount of each debit and credit.
4. Record the journal entry using the appropriate format.
Now, let's journalize the given transactions for Tammy Company:
1. September 1: Sold $3,500 of merchandise to Jim on account
- Accounts Receivable (Jim) is debited for $3,500 (increase in assets)
- Sales Revenue is credited for $3,500 (increase in revenue)
Journal entry:
Debit: Accounts Receivable (Jim) - $3,500
Credit: Sales Revenue - $3,500
2. October 1: Exchanged Jim’s account receivable for a four-month, 8% note for $3,500
- Notes Receivable is debited for $3,500 (increase in assets)
- Accounts Receivable (Jim) is credited for $3,500 (decrease in assets)
Journal entry:
Debit: Notes Receivable - $3,500
Credit: Accounts Receivable (Jim) - $3,500
3. December 31: Recorded accrued interest on Jim’s note
- Interest Receivable is debited for the accrued interest amount
- Interest Revenue is credited for the accrued interest amount
The formula for calculating accrued interest is: Principal x Interest Rate x (Number of days/365 days)
Given that the principal is $3,500 and the interest rate is 8%, and assuming 92 days have passed since October 1:
Accrued interest = $3,500 x 0.08 x (92/365) = $77.12
Journal entry:
Debit: Interest Receivable - $77
Credit: Interest Revenue - $77
4. February 1: Jim paid off his note with interest (rounded to the nearest dollar)
- Notes Receivable is debited for the principal amount of $3,500
- Interest Revenue is debited for the accrued interest of $77
- Cash is credited for the total payment made by Jim, including principal and interest (rounded to the nearest dollar)
Journal entry:
Debit: Notes Receivable - $3,500
Debit: Interest Receivable - $77
Credit: Cash - (Total payment by Jim)
Remember to round the final cash amount to the nearest dollar.
Please note that the actual journal entry for transaction 4 would require specific amounts, which are not mentioned in the question. The above entry shows the general format for recording the transaction.