Uniform Supply accepted a $4,800, 90-day, 10% note from Tracy Janitorial on October 17. If the note is dishonored, what entry should Uniform Supply make on January 15 of the next year, assuming interest was properly accrued at the previous December 31 year end?
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.

Question

Quizplus · Accepted Answer

The note is dishonored, so Uniform Supply should debit Accounts Receivable for the total amount due, which includes the principal and interest. The interest was accrued at year-end, so Interest Receivable is credited for the accrued amount, and Interest Revenue is credited for the interest from January 1 to January 15.

Uniform Supply Accepted a $4,800, 90-Day, 10% Note from Tracy