Question

Valley Spa purchased $11,700 in plumbing components from Tubman Co. Valley Spa signed a 60-day, 14% promissory note for $11,700. If the note is dishonored, but Tubman intends to continue collection efforts, what is the journal entry to record the dishonored note? (Use 360 days a year.)

Answer 1

Answer:

Given that,

Value of promissory note = $11,700

Time period = 60 days

Interest rate = 14%

Interest revenue:

= Note value × Interest rate × Time period

= $11,700 × 0.14 × (60/360)

= $273

Therefore, the journal entry is as follows:

Accounts receivable A/c Dr. $11,973

          To Interest revenue                  $273

          To Notes receivable                 $11,700

(To record the dishonored note)