Accounts Receivable

Schultz Co. sells its goods and services to customers on acredit basis. Schultz adjusts its accounts just once a year, at theDecember 31 year-end. The company’s balance sheet at year-end 2018reported the following information concerning the company’saccounts receivable:

Current assets:

Accounts receivable, net of allowanceof$231,465                     $2,186,970

During 2019, Schultz experienced the following transactionsrelated to its accounts receivable:

Sales on account	$11,179,280
Collections on account	10,614,915
Write-offs of accounts receivable	317,120
Collections of accounts previously written off	70,615

Schultz uses an aging of receivables to facilitate itsaccounting for doubtful accounts. The following information isavailable from the company’s aging schedule at year-end 2019:

Age Group	Amount	Estimated % Uncollectible
0-30 days	$1,282,370	1%
31-60 days	674,140	8%
61-90 days	341,920	18%
91-120 days	203,580	29%
Over 120 days	163,670	63%
	$2,665,680

4-Year Promissory Note

On December 31, 2019, Schultz received a 4-year promissory noteas consideration in an inventory sale transaction on that date. The5%, $63,480 note requires the customer to pay interest annually onDecember 31 (2020 through 2023). The going market rate of interestfor comparable notes on the issue date was 8%.

5-Year Promissory Note

On that same date (December 31, 2019), Schultz received a 5-yearpromissory note from another customer as consideration in aninventory sale transaction. The note is noninterest-bearing, and itcalls for the customer to pay the full face value of $38,125 on theDecember 31, 2024 maturity date. The going market rate of interestfor comparable notes on the issue date was 9%.

Schultz uses the effective-interest method to amortize premiumsand discounts on all of its promissory notes.

– Instructions –

Address the following matters related to Schultz Co.’s accountsand notes receivable transactions:

1. Give the journal entries to record the transactions in 2019related to Schultz’s accounts receivable. (Hint – A total of 5entries are needed.)

2. Prepare the adjusting entry needed for bad debts at year-end2019 based on the aging schedule information provided.

3. Give the entry to record Schultz’s receipt of the 4-yearpromissory note on December 31, 2019.

4. Give the interest and collection entries Schultz must make overthe remaining term of the 4-year note (through December 31, 2023).Tip – You might find it helpful to start by preparing anamortization schedule (see pages 340 and 341).

5. Give the entry to record Schultz’s receipt of the 5-yearpromissory note on December 31, 2019.

6. Give the interest and collection entries Schultz must make overthe remaining term of the 5-year note (through December 31, 2024).Tip – You might find it helpful to start by preparing anamortization schedule (see pages 340 and 341).