Question

Majesty Productions accepted a $7,200, 120-day, 6% note from Swartz Studio on March 1. On the date the note matures, Swartz is unable to pay, but Majesty intends to continue collection efforts. What entry should Majesty record on the maturity date for this dishonored note?
a. Debit Accounts Receivable $7,200; credit Notes Receivable $7,200.

b. Debit Accounts Receivable $7,200; credit Allowance for Doubtful Accounts $7,200.

c. Debit Bad Debt Expense $7,344; credit Notes Receivable $7,344.

d. Debit Accounts Receivable $7,344; credit Interest Revenue $144; credit Notes Receivable $7,200.

e. Debit Accounts Receivable $7,056; debit Interest Revenue $144; credit Notes Receivable $7,200.

Answer 1

Answer:

D. Debit Accounts Receivable $7,344; credit Interest Revenue $144; credit Notes Receivable $7,200.

Explanation:

Majesty record on the maturity date for this dishonored note will be Debit Accounts Receivable $7,344; credit Interest Revenue $144; credit Notes Receivable $7,200.

Answer 2

Answer:

D. Debit Accounts Receivable $7,344; credit Interest Revenue $144; credit Notes Receivable $7,200.

Explanation:

Interest: $7,200 × .06 × 120/360 = $144

The entry that Majesty should record on the maturity date for this dishonored note is :

Debit Accounts Receivable $7,344

Credit Interest Revenue $144

Credit Notes Receivable $7,200.