Question

Norton Company has accounts receivable of $40,000 in its general ledger at July 31: During August, the following transactions occurred. Aug. 1 Added 1% finance charges to $13,000 of credit card balances for not paying within the 30 day grace period. 15 Sold $21,000 of accounts receivable to Iron Factors Inc. who charge a 4% commission. 28 Collected $8,000 from Norton credit card customers which included $400 of finance charges previously billed.
Required:
a. Journalize the transactions.
b. Indicate the statement presentation of finance and service charges.

Answer 1

1.The journal entries to record the transactions of Norton Company during August are as follows:

Aug. 1 Debit Interest Receivable $130

Credit Interest Revenue $130

Aug. 15 Debit Accounts Receivable (Iron Factors Inc.) $20,160

Debit Sales Commission $840

Credit Sales Revenue $21,000

4% commission.

Aug. 28 Debit Cash $8,000

Credit Accounts Receivable (Norton credit card) $7,600

Credit Interest Receivable $400

2. The statement presentation of finance and service charges is as follows:

Income Statement:

Interest revenue $130 (Credit)

Sales commission $840 (Debit)

Data and Calculations:

Accounts receivable at July 31 = $40,000

Transactions:

Aug. 1 1% finance charges to $13,000 = $130 ($13,000 x 1%)

Aug. 1 Interest Receivable $130 Interest Revenue (finance charges) $130

Aug. 15 Accounts Receivable (Iron Factors Inc.) $20,160 Sales Commission $840 Sales Revenue $21,000

4% commission.

Aug. 28 Cash $8,000 Accounts Receivable (Norton credit card) $7,600 Interest Receivable $400

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