Question

When an interest-bearing note is dishonored at maturity and ultimate collection is expected, the entry for the dishonoring, assuming no previous accrual of interest should include a.a debit to Allowance for Doubtful Accounts. b.only a credit to Notes Receivable. c.a credit to Notes Receivable and Interest Revenue. d.a credit to Notes Receivable and Interest Receivable. Answer:c

Answer 1

Answer:

The correct answer is C. a credit to Notes Receivable and Interest Revenue.

Explanation:

When this registration is made, what occurs is to decrease the obligation they have with our organization, and an increase in income due to the recognition of the interests effectively recognized at the expiration of the obligation. Dishonoring the note means recognizing that we no longer have a callable value, and that the value receivable is extinguished as a result of the end of the agreed period of permanence.

Answer 2

Answer: c. a credit to Notes Receivable and Interest Receivable

Explanation: Notes are a written promise to pay a specific amount of money at a future date and as a financial instruments can be issued with or without interest; and are recorded at face value and classified in the balance sheet based on maturity time. A note is said to be dishonored when the maker of the note fails to pay as at when due. However, if ultimate collection is expected, an entry is made as follows: a credit to interest income and also a credit to notes receivable.