Question

On March 14, Zest Co. accepted a 120-day, 6% note in the amount of $5,000 from AZC Co., a customer. On the due date of the note, AZC dishonors the note and fails to pay. The journal entry that Zest would make to record the failure to pay this note on the due date would include a debit to:

Answer 1

Answer:

Note = $5,000

Interest rate = 6%

Time period = 120 days

The journal entry is as follows:

On July 12,

Account receivable A/c     Dr. $5,100

To Notes receivable                            $5,000

To Interest revenue                       $100

(To record note dishonor)

Workings:

Interest revenue = $5,000 × 0.06 × (120÷360)

                            = $100