Accounts and Notes Receivable
Lenox Corp. sold merchandise for $5,000 to M. Baxter on May 15, 2014, with payment due in 30 days. Subsequent to this, Baxter experienced cash-flow problems and was unable to pay its debt. On August 10, 2014, Lenox stopped trying to collect the outstanding receivable from Baxter and wrote off the account as uncollectible. On December 1, 2014, Baxter sent Lenox a check for $1,000 and offered to sign a two-month, 9%, $4,000 promissory note to satisfy the remaining obligation. Baxter paid the entire amount due Lenox, with interest, on January 31, 2015. Lenox 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 Lenox Corp. from May 15, 2014 to January 31, 2015.
2. Why would Baxter bother to send Lenox 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?