Accounts and Notes Receivable
Tweety Inc. sold merchandise for $6,000 to P.D. Cat on July 31, 2008, with payment due in 30 days.
Subsequent to this, Cat experienced cash flow problems and was unable to pay its debt. On
December 24, 2008, Tweety stopped trying to collect the outstanding receivable from Cat and
wrote off the account as uncollectible. On January 15, 2009, Cat sent Tweety a check for $1,500 and
offered to sign a two-month, 8%, $4,500 promissory note to satisfy the remaining obligation. Cat
paid the entire amount due Tweety, with interest, on March 15, 2009. Tweety ends its accounting
year on December 31 each year.
1. Prepare all of the necessary journal entries on the books of Tweety Inc. from July 31, 2008, to
March 15, 2009.
2. Why would Cat bother to send Tweety a check for $1,500 on January 15 and agree to sign a note
for the balance, given that such a long period of time had passed since the original purchase?