Accounts and Notes Receivable Linus Corp. sold merchandise for $5,000 to C. Brown on May 15,…

Accounts and Notes Receivable Linus Corp. sold merchandise for $5,000 to C. Brown on May 15,…

Accounts and Notes Receivable

Linus Corp. sold merchandise for $5,000 to C. Brown on May 15, 2008, with payment due in

30 days. Subsequent to this, Brown experienced cash flow problems and was unable to pay its

debt. On August 10, 2008, Linus stopped trying to collect the outstanding receivable from Brown

and wrote off the account as uncollectible. On December 1, 2008, Brown sent Linus a check for

$1,000 and offered to sign a two-month, 9%, $4,000 promissory note to satisfy the remaining

obligation. Brown paid the entire amount due Linus, with interest, on January 31, 2009. Linus

ends its accounting year on December 31 each year and uses the allowance method to account for

bad debts.

Required

1. Prepare all of the necessary journal entries on the books of Linus Corp. from May 15, 2008 to

January 31, 2009.

2. Why would Brown bother to send Linus a check for $1,000 on December 1 and agree to sign a

note for the balance, given that such a long period of time had passed since the original purchase?

 

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