Question

A $6,000, 60-day, 12% note recorded on November 21 is not paid by the maker at maturity. The journal entry to recognize this event is A. debit Cash, $6,120 credit Notes Receivable, $6,120B. debit Accounts Receivable, $6,120 credit Notes Receivable, $6,000 Credit Interest Receivable, $120C. debit Notes Receivable, $6,060 credit Accounts Receivable, $6,060D. debit Accounts Receivable, $6,120 credit Notes Receivable, $6,000Credit Interest Revenue, $120

Answer 1

Answer:

Option (B) is correct.

Explanation:

On November 21,

Note amount = $6,000

Period = 60-day

Interest rate = 12%

When Note is not paid by the market at maturity, then

The Accounts Receivable Account is debited with the Par Value of Note plus interest income and credited Notes Receivables $6,000 and Credit Interest Revenue $120.

Therefore, the journal entry is as follows:

Accounts Receivable A/c     Dr. $6,120

To Notes Receivables                              $6,000

To Interest Revenue                                 $120

(To record the note)