Question

33. Valley Spa purchased $7,800 in plumbing components from Tubman Co. Valley Spa signed a 60-day, 10% promissory note for $7,800. If the note is dishonored, but Tubman intends to continue collection efforts, what is the journal entry to record the dishonored
    note? (Use 360 days a year.)

    1. A) Debit Accounts Receivable—Valley Spa $7,930, credit Interest Revenue $130; credit Notes Receivable $7,800.

    2. B) Debit Accounts Receivable $7,930; debit Bad Debt Expense $130; credit Notes Receivable $8,060.

    3. C) Debit Bad Debt Expense $7,930; credit Accounts Receivable $7,930.

    4. D) Debit Accounts Receivable—Valley Spa $7,800; credit Notes Receivable $7,800.

    5. E) Debit Bad Debt Expense $7,800; credit Notes Receivable $7,800.

Answer 1

Par value of note = $7,800

Interest rate = 10%

Time period = 60 days

Interest on note = Par value of note x Interest rate x Time period/360

= 7,800 x 10% x 60/360

= $130

At the maturity, when note is dishonored , Tubman will make the following adjusting entry:

A) Debit Accounts Receivable—Valley Spa $7,930, credit Interest Revenue $130; credit Notes Receivable $7,800.

Hence, correct option is A.

Please give a positive rating if you are satisfied with this solution and if you have any query kindly ask.

Thanks!!!