Question

A company accepted a 60-day, 15 percent note having a face value of $2,000 from Ron Warren in settlement of his account receivable. The note was dishonored at maturity. The correct entry on the books of the company to record the default on the note is:

a)Accounts Receivable      2,050
              Notes Receivable                2,000
              Interest Revenue                       50

b) Notes Payable                 2,000
          Accounts Payable                2,000

c) Dishonored Notes Receivable   2,300
               Notes Receivable                                2,000
               Interest Revenue    300

d) Dishonored Notes Receivable    2,050
            Notes Receivable                                    2,050

Answer 1

Interest on notes receivable = $2,000 * 15% * 60 / 360 = $50

When the note is accepted in settlement of accounts receivable, notes receivable is debited and accounts receivable is credited.

When the note was dishonored at maturity, notes receivable is credited.

The answer is d.