Asked by Laura De Luna on Jul 27, 2024
Verified
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.
Dishonored Note
A promissory note that has not been paid by the debtor at the time it is due.
Collection Efforts
Activities undertaken by a business or organization to pursue and recover funds owed by customers or clients.
- Perform calculations and log entries pertaining to notes receivable transactions, involving interest determination and instances of dishonored notes.
Verified Answer
MA
Myranda ArandaRubioAug 01, 2024
Final Answer :
D
Explanation :
The correct entry involves debiting Accounts Receivable for the total amount due, including both the principal and the interest, and crediting Notes Receivable for the principal amount and Interest Revenue for the interest earned. The interest is calculated as $7,200 * 6% * (120/360) = $144, making the total amount due $7,344.
Learning Objectives
- Perform calculations and log entries pertaining to notes receivable transactions, involving interest determination and instances of dishonored notes.