Question

Use the information provided below to answer the following question (same for set of 5 questions). Nash began April with accounts receivable of $49,000 and a credit balance in Allowance for Uncollectible Accounts of $1,000. They made $500,000 in credit sales (sales on account) during April. Collections from customers totaled $493,003. One customer, frank Jones, could not pay his $1, 200 account receivable. On April 7, he negotiated to exchange his past-due account for a $1, 200, 4%, 90-day note receivable. Historically, 1% of credit sales have prove uncollectible. During April, 3375 of old accounts receivable were written off as uncollectible.
The necessary adjusting entry at April 30 would include:
a) Debit to Interest Receivable, $11, 84
b) Credit to Interest Payable, $48.00
c) Debit to Note Receivable, $3.02
d) Credit to Interest Revenue, $3.02
e) Both C and D.

Answer 1

Answer:

d) Credit to Interest Revenue, $3.02

Explanation:

beginning balance of accounts receivable $49,000

allowance for doubtful accounts $1,000

net credit sales $500,000

collections on accounts receivable $493,003

$6,997

Frank Jones:

Dr Notes receivable 1,200

    Cr Accounts receivable 1,200

Write offs:

Dr Allowance for doubtful accounts 3,375

    Cr Accounts receivable 3,375

the adjusting entry in this question refers to the notes payable from frank Jones:

we must determine the interest revenue for the month of April = $1,200 x 0.04 x (23 days/365 days) = $3.02

the journal entry should be:

April 30, accrued interest from notes receivable

Dr Interest receivable 3.02

    Cr Interest revenue 3.02 ⇒ OPTION D