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Obtaining student loans is not easy, but many websites and organizations are available to assist students in obtaining student loans and other financial aid. What many students find more difficult is paying back the loans once they are out of college.

As of 2018, it is estimated that student loan debt in the United States totals $1.5 trillion. This amount is second only to total mortgage debt. More than 44 million people in the United States have student debt, averaging over$37,000 per person.

As student debt has increased, so has the number of people who have difficulty repaying the debt. A student loan is considered delinquent the first day after the borrower misses a payment. For many loans, if the payment is more than 90 days overdue, the delinquency will be reported to the three major credit bureaus, which will lower the borrower's credit score. Many student loans are considered to be in default if the borrower fails to make a payment for 270 days. The current default rate is almost 11%.

While most kinds of debt can be discharged in bankruptcy, meaning that the debt does not have to be repaid, student debt is rarely discharged. Current law states that in order for the court to discharge student debt in bankruptcy, the borrower must prove that repaying the debt will cause "undue hardship" to the borrower. The law, however, does not clearly define the phrase "undue hardship."

The undue hardship clause makes it very difficult for most borrowers to get relief from student debt through bankruptcy. Therefore, before taking out a loan for college, realize that you will have to pay it back someday.

Use the Internet to answer the following questions:

  1. When a law is unclear, court cases are commonly used to clarify the law. Have recent court cases clearly defined the definition of "undue hardship?"

Roberts, Inc., completed the following transactions during the current year. Roberts initially records supplies and insurance as expenses and maintains a liability account for estimated warranty expenses. Source documents are abbreviated as follows: check, C; memorandum, M; receipt, R.


  1. Journalize the following transactions in a cash receipts journal.
Aug. 10. Agreed to a 180-day, 8% note with National Bank for $20,000.00. R123.
Oct. 20. Received$ 25,000.00 from First American Bank, signing a 90-day, 10% note. R149.
Nov. 5. Signed a $13,000.00,90-day, 9% note with First Commerce Bank. R152.
Dec. 9. Drew$6,200.00 from its First American Bank line of credit. The bank deposited the funds directly to its checking account. R165.
  1. Use the following information to journalize adjusting entries for prepaid expenses and accrued expenses on December 31 of the current year. Include the adjusting entry for the accrued interest on the outstanding notes payable.
Supplies inventory $480.00
Value of prepaid insurance 2,400.00
Advertising used 20,000.00
Additional federal income tax owed 875.00
  1. Journalize the appropriate reversing entries on January 1 of the next year.

  2. Calculate the maturity date for each note payable and the total amount of interest due at the maturity date.

  3. Journalize the following transactions on a cash payments journal. For the payment of each note payable, use the maturity dates calculated in the prior step.

Jan. 12. Wrote a check to John Patterson for parts he purchased to repair an item under warranty,$89.95. C394. Issued Check No. 405 for the maturity value of the First American Bank note, plus interest.
31. Used the bank's Internet site to pay $1,000.00 plus$75.69 interest on its line of credit. M84 (enter the memorandum number in the Check No. column).
Paid the maturity value of the First Commerce Bank note, plus interest. C423.
Wrote Check No. 428 to pay off the National Bank note, plus interest. C428.

A cash receipts journal and a cash payments journal are provided in the Working Papers. Source documents are abbreviated as: check, C; receipt, R.

Using the current year, journalize the following transactions.

May 16. Signed a 180-day, 10% note with First National Bank, $16,000.00. R335.
Aug. 8. Signed a 120-day, 9% note with American Bank,$20,000.00. R456.
Dec. 3. Drew $16,900.00 from a line of credit. R615.


Answered 1 year ago
Answered 1 year ago
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In this exercise, we will journalize various note payable transactions and line of credit transactions.

We will use the Cash Receipts Journal provided in the Working Papers.

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