Asked by Taylor Morrison on Jun 12, 2024
Verified
If the note is dishonored,but Uniform Supply intends to continue collection efforts,what entry should Uniform Supply make on January 15 of the next year? (Assume no reversing entries are made.) (Use 360 days a year.)
A) Debit Notes Receivable $4,800; debit Interest Receivable $120; credit Sales $4,920.
B) Debit Cash $4,920; credit Notes Receivable $4,920.
C) Debit Cash $4,920; credit Interest Revenue $100; credit Interest Receivable $20,credit Notes Receivable $4,800.
D) Debit Cash $4,920; credit Interest Revenue $20; credit Interest Receivable $100,credit Notes Receivable $4,800.
E) Debit Accounts Receivable $4,920; credit Interest Revenue $20; credit Interest Receivable $100,credit Notes Receivable $4,800.
Dishonored Note
A promissory note that has not been paid by the maker at maturity, resulting in a default.
Collection Efforts
Activities undertaken by a business or organization to pursue and receive payments owed by customers or clients.
Reversing Entries
Journal entries usually made at the beginning of an accounting period to reverse or cancel out adjusting entries from the end of the previous period.
- Enact and document procedures pertinent to notes receivable transactions, which involve the assessment of interest and management of dishonored notes.
Verified Answer
BS
Braham SinghJun 13, 2024
Final Answer :
E
Explanation :
When a note is dishonored and the company intends to continue collection efforts, the correct entry involves moving the balance from Notes Receivable to Accounts Receivable, including the interest that has accrued. The interest for 90 days on a $4,800 note at 10% annual interest is $120 ($4,800 * 10% * (90/360)). Therefore, the total amount to be collected is $4,920, which includes both the principal and the interest. The entry debits Accounts Receivable for the total amount to be collected and credits Notes Receivable for the principal and Interest Receivable for the accrued interest, recognizing any previously unrecorded interest as Interest Revenue.
Learning Objectives
- Enact and document procedures pertinent to notes receivable transactions, which involve the assessment of interest and management of dishonored notes.