Question

Paper Company receives a $6,000, three-month, 6% promissory note from Dame Company in settlement of an open accounts receivable. What entry will Paper Company make upon receiving the note? a. Notes Receivable, Dame Company6,000 Interest Revenue90 Accounts Receivable, Dame Company6,000 Interest Receivable90 b. Notes Receivable, Dame Company6,090 Accounts Receivable, Dame Company6,090 c. Notes Receivable, Dame Company6,090 Accounts Receivable, Dame Company6,000 Interest Revenue90 d. Notes Receivable, Dame Company6,000 Accounts Receivable, Dame Company6,000

Answer 1

Answer:

The correct entry is d. Notes Receivable, Dame Company6,000 Accounts Receivable, Dame Company6,000

Explanation:

Note receivable is a written promise to get a specific amount of money at a chosen future date. In other words, a Notes receivable is an asset of Paper Company because it holds a written promissory note from Dame Company. Since Paper Company is receiving cash, it an asset (Asset means the possessions of a company). The note receivable is due within a year, and then it is a current asset on the balance sheet

In this question, Paper Company will debit it note receivable and credit it account receivable (amount owed by Dame Company) as shown on the journal below

General Journal                                  Debit    Credit

Notes Receivable—Dame Company $6,000

Accounts Receivable—Dame Company  $6,000