Valley Spa purchased $7,800 in plumbing components from Tubman Co.Valley Spa signed a 60-day,10% promissory note for $7,800.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.)

A) Debit Accounts Receivable $7,930; debit Bad Debt Expense $130; credit Notes Receivable $8,060.
B) Debit Bad Debt Expense $7,930; credit Accounts Receivable $7,930.
C) Debit Bad Debt Expense $7,800; credit Notes Receivable $7,800.
D) Debit Accounts Receivable-Valley Spa $7,800; credit Notes Receivable $7,800.
E) Debit Accounts Receivable-Valley Spa $7,930,credit Interest Revenue $130; credit Notes Receivable $7,800.

Question

Ornella Deligio · Accepted Answer

Final Answer : E, Explanation :  The correct journal entry to record the dishonored note involves debiting Accounts Receivable for the principal plus interest ($7,930), crediting Interest Revenue for the interest earned ($130), and crediting Notes Receivable for the principal amount of the note ($7,800). The interest is calculated as $7,800 * 10% * (60/360) = $130, making the total amount due $7,930.

Definitions

Learning Objectives

Learning Objectives

Related questions