Cheung Ltd has an account receivable for $12 000 from R.Morris that is overdue.Morris requests a 60-day extension of the payment date and Cheung Ltd agrees by accepting a fixed 60-day,12% promissory note in exchange for the accounts receivable.The entry Cheung Ltd makes on receipt of the note is:

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Cheung Ltd is receiving a promissory note in exchange for the accounts receivable, which means that the accounts receivable is being paid off with the note. The face value of the note is $12,236.71, which includes the original amount of $12,000 and $236.71 in interest (12% annually for 60 days). Therefore, the accounts receivable is credited for $12,000, the unearned interest is credited for $236.71, and the bills receivable is debited for $12,236.71. This entry correctly reflects the exchange of the accounts receivable for the promissory note.

Cheung Ltd Has an Account Receivable for $12 000 from R.Morris