Teller purchased merchandise from TechCom on October 17 of the current year and TechCom accepted Teller's $4,800, 90-day, 10% note. If the note is dishonored, what entry should TechCom make on January 15 of the next year?
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

When a note is dishonored, the maker (Teller) fails to pay the note when it is due. The holder of the note (TechCom) must then make an adjusting entry to record the dishonored note and any related interest. The entry to record the dishonored note on January 15 of the next year is:Debit Cash $4,920Credit Interest Revenue $20Credit Interest Receivable $100Credit Notes Receivable $4,800This entry records the receipt of the cash payment, the recognition of the interest revenue earned, and the removal of the note receivable from the books.

Teller Purchased Merchandise from TechCom on October 17 of the Current