Frontline Company holds a $1,000,12%,90-day note of J.Candioto.At maturity,Candioto dishonors the note.How would the company record dishonoring of the note?
A)Debit Accounts Receivable-J.Candioto for $1,000 and credit Notes Receivable for $1,000.
B)Debit Notes Receivable-J.Candioto for $1,000 and credit Accounts Receivable for $1,000.
C)Debit Accounts Receivable-J.Candioto for $1,030 and credit Notes Receivable for $1,030.
D)Debit Notes Receivable-J.Candioto for $1,030,credit Interest Revenue for $30,and credit Accounts Receivable for $1,000.
E)Debit Accounts Receivable-J.Candioto for $1,030,credit Interest Revenue for $30,and credit Notes Receivable for $1,000.

Question

Quizplus · Accepted Answer

When a note is dishonored, the accounts receivable must be increased to include both the face value of the note and any accrued interest. Therefore, accounts receivable-J.Candioto should be debited for $1,030 ($1,000 plus $30 interest), and notes receivable should be credited for $1,000. Additionally, interest revenue should be credited for $30 to reflect the interest that has been earned but not collected.

Frontline Company Holds a $1,000,12%,90-Day Note of J