On December 1,2018,a company converted an existing account receivable in the amount of $6,000 to a note receivable to allow an extended payment period.The note is due in three months and includes an annual interest rate of 9%.The company prepares year-end financial statements on December 31 and recorded adjusting entries at that time.What entry should the company make on March 1,2019,when the interest is paid at maturity?
A)Debit Cash and credit Notes Receivable for $6,135.
B)Debit Cash for $6,135,credit Notes Receivable for $6,000,and credit Interest Revenue for $135.
C)Debit Cash for $135 and credit Interest Revenue for $135.
D)Debit Cash for $135,credit Interest Receivable for $45,and credit Interest Revenue for $90.

Question

Quizplus · Accepted Answer

Interest = Principal × Interest rate × Time
Accrued at December 31:
= $6,000 × 0.09 × 1/12 = $45
Earned from January 1 through March 1:
= $6,000 × 0.09 × 2/12 = $90
The entry includes a debit to Cash for $135,a credit to Interest Receivable for $45 (the amount accrued at December 31,2018),and credit Interest Revenue for $90 (the amount of interest earned from January 1 through March 1,2019).

On December 1,2018,a Company Converted an Existing Account Receivable in the Amount