QUESTION 1

On 1 January 2020, Nothing Else Bhd (NEB) had Accounts Receivable RM278,000, Notes
Receivable RM60,000 and Allowance for Doubtful Accounts RM26,400. NEB prepares
financial statements annually at 31 December. During the year, the following selected
transactions occurred:

20 January 2020 NEB sold RM48,000 of merchandise to Matters Bhd (MB), terms
n/30.

20 February 2020 MB forwarded a notice to NEB asking for longer credit period for
the sales amounting RM48,000 in previous month. NEB agreed to
extend the credit period and convert the remaining balance of
account receivable to 9%, 90-day note receivable.

19 May 2020 NEB managed to collect MB note receivable in full.

25 August 2020 NEB converted a RM8,000 account receivable of Wayward Bhd

(WB) to 7%, 90-day note receivable in settlement of a past due
balance on account.

25 November 2020 The WB note receivable was dishonored. WB is not bankrupt and
future payment is anticipated.

REQUIRED:

(a) Prepare the appropriate journal entries to record the above transactions for Nothing
Else Bhd. Round your answer to nearest RM.

(b) Explain the difference between accounts receivable and notes receivable.

ANSWER Q1
(a)
20/1/20 Accounts Receivable - Matters Bhd 48,000
Sales Revenue 48,000

20/2/20 Notes Receivable 48,000

Accounts Receivable – Matters Bhd 48,000

19/5/20 Cash 49,065

Notes Receivable 48,000
Interest Revenue (RM48,000 X 9% X 90/365) 1065

25/8/20 Notes Receivable 8,000

Accounts Receivable – Wayward Bhd 8,000
 25/11/20 Accounts Receivable – Wayward Bhd 8,138
Notes Receivable 8,000
Interest Revenue (RM8,000 X 7% X 90/365) 138

(b)
Accounts receivable are amounts owed by customers on account. They result from
the sale of goods and services.

Notes receivable represent claims that are evidenced by formal instruments of credit.

QUESTION 2

Magnetic-Tech Bhd is a public company that sells IT-gadgets based products. Followings are
information regarding its credit sales transaction in March 2019.

Date Transactions
3 March Sold 250 units of Smart Home Camera, 100 units of Mini Car DVR Camera
and 500 units of Mini GPS Tracker to Hijrah Yusman Bhd. The sales price
per unit of the Smart Home Camera, Mini Car DVR Camera and Mini GPS
Tracker are RM400, RM350 and RM300 respectively. Hijrah Yusman was
given trade discounts of RM2,000 for the Mini GPS Tracker. The credit term
is 4/30, n/60.
14 March Received 5 units of Mini Car DVR Camera from Hijrah Yusman Bhd. The
units were returned as defective items. Magnetic-Tech Bhd agreed to reduce
the outstanding amount owed by Hijrah Yusman for the total amount of the
defective units.
28 March Received full payment from Hijrah Yusman Bhd.

Additional information:

Magnetic-Tech Bhd uses periodic inventory system to evaluate inventory and gross method to
record sales discounts.

REQUIRED:

(a) Prepare necessary journal entries related to accounts receivable for the above transaction.

(b) Short-term receivables are shown at net realizable value. Briefly explain the meaning of net
realizable value and how it can be determined.
ANSWER Q2 (a)

3 March
Dr. Account Receivable – Hijrah Yusman 283,000*
Cr. Sales revenue 283,000
14 March
Dr. Sales Returns and Allowance 1,750
Cr. Account Receivable 1,750
28 March
Dr. Cash 270,000
Sales discount 11,250
Cr. Account receivable 281,250
*
Smart Home Camera 250*RM400 = RM100,000
Mini Car DVR Camera 100*RM350 = RM35,000
Mini GPS Tracker 500*RM300 = RM150,000 – RM2,000 = RM148,000
Total credit sales RM100k+RM35k+RM148K=RM283,000
**
283,000 – 1,750 = 281,250
Sales discounts = 0.04*281,250 = 11,250
Payment need to settle = 281,250 – 11,250 = 270,000
(b)
NRV is the amount of cash that company expects to receive from its credit customers. It is determined
by deducting the amounts of Allowance of Doubtful debts from the amounts of AR.

QUESTION 3

On 1 April 2020, Jeniang Sdn Bhd assigns its account receivables RM400,000 to Worthy Bank
as collateral for a RM300,000 note. Worthy Bank charge 1 percent of the assigned receivables
and interest of the note of 6%. Jeniang Sdn Bhd collects its account receivables every month and
uses the collected money to pay Worthy Bank. Followings are the transaction that has occurred.

1. 30 April, Jeniang Sdn Bhd collects RM50,000 from its customer. The customer paid
within the discount period and received RM1,000 cash discount.
2. 1 May, Jeniang Sdn Bhd pays Worthy Bank.
3. 29 May, the customer pays RM100,000 to Jeniang Sdn. Due to some defects on the
products bought from Jeniang, the customer made sales returns of RM800.
4. 2 June, Jeniang Sdn Bhd pays Worthy Bank.
5. 29 June, Jeniang successfully collects the remaining amount of its assigned accounts
receivables from its customer.
6. 1 July, Jeniang Sdn Bhd pays Worthy Bank.
Required:
Prepare journal entries for the above transactions.
Answer Q3
1 April: Dr. Cash 296,000
Finance charge 4,000
Cr. Notes payable 300,000

Dr. Accounts recievable assigned 400,000

Cr. Account receivable 400,000

30 April: Dr. Cash 49,000

Cash discount 1,000
Cr. Account receivable assigned 50,000

1 May: Dr. Interest expense 1,500 (300,000*6%*1/12)

Notes payable 49,000
Cr. Cash 50,500

29 May: Dr. Cash 100,000

Sales returns 800
Cr. AR assigned 100,800

2 June: Dr. Interest expense 1,255 (251,000*6%*1/12)

Notes payable 100,000
Cr. Cash 101,255

29 June: Dr. Cash 249,200

Cr. AR assigned 249,200

1 July: Dr. Interest expense 755 (151,000*6%*1/12)

Notes payable 151,000
Cr. Cash 151,755