Question

On March 5, Oak Corp. provided services on account to Pine. Oak initially recorded this as an account receivable but it later became apparent Pine could not pay quickly so Oak required Pine to sign a $100,000, 12%, 2-month interest-bearing note. The journal entry required by Oak when Pine signs the note includes
Debit Notes Receivable $100,000; credit Accounts Receivable $100,000.

Debit Notes Receivable $100,000; credit Service Revenue $100,000.

Debit Notes Receivable $102,000; credit Service Revenue $102,000.

Debit Notes Receivable $102,000; credit Accounts Receivable $102,000.

Answer 1

Answer:

The correct option is Debit Notes Receivable $100,000; credit Accounts Receivable $100,000

Explanation:

The journal entry to record when the notes receivable was signed to credit accounts receivable with the original value of the debt and debit same amount to notes receivable as is the case with the first option.

The interest due on the notes of $2,000 ($100,000*12%*2/12) would be recognized when the notes receivable become due for payment not immediately