On 1 January,Ajax Company accepted a one-year bill for $50,000 at 5% from one of its customers.When the bill matured on 31 December,the customer was unable to pay and the company recorded the dishonour.The amount of the debit in the dishonour entry would be:

Question

Quizplus · Accepted Answer

The dishonour of the bill means that the customer has failed to pay the bill on its due date. Therefore, the full value of the bill needs to be recorded as a debit in the dishonour entry to reflect that Ajax Company will not receive any payments from the customer. The bill amount is $50,000, and the debit in the dishonour entry should also be $50,000. However, since the bill was issued at 5%, there would be interest accrued on the bill until its maturity date. The interest accrued can be calculated as follows:

Interest = Principal x Rate x Time
= $50,000 x 5% x 1 year
= $2,500

Therefore, the total amount of the debit in the dishonour entry would be the bill amount plus the interest accrued, which is $50,000 + $2,500 = $52,500. Option D is the correct answer.

On 1 January,Ajax Company Accepted a One-Year Bill for $50,000