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.Cheung Ltd makes which entry to record the collection of the promissory note from R.Morris including interest?

Question

Quizplus · Accepted Answer

The entry to record the collection of the promissory note from R. Morris including interest is to debit Cash for $12,236.71, debit Unearned Interest for $236.71, credit Bills Receivable for $12,236.71, and credit Interest Revenue for $236.71. This is because the promissory note is a new financial instrument that has been created, and the interest that has accrued on the note is considered to be income.

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