Question

Sloan Company receives a $3,000, 3-month, 6% promissory note from Day Company in settlement of an open accounts receivable. What entry will Sloan Company make upon receiving the note?a. Notes Receivable 3,045Accounts Receivable—Day Company 3,045b. Notes Receivable 3,045Accounts Receivable—Day Company 3,000Interest Revenue 45c. Notes Receivable 3,000Interest Receivable 45Accounts Receivable—Day Company 3,000Interest Revenue 45d. Notes Receivable 3,000Accounts Receivable—Day Company 3,000

Answer 1

c. Notes Receivable 3,000 Interest Receivable 45 Accounts Receivable—Day Company 3,000 Interest Revenue 45

Step-by-step explanation:

Interest from the Notes Receivable Sloan company receives = $3,000x6%x3/12 = $45

When receiving the note, the company have to record the decreasing of Accounts Receivable and the interest amount by the entries:

1. Debit Notes Receivable $3,000

Credit Accounts Receivable—Day Company $3,000

2. Debit Interest Receivable $45

Credit Interest Revenue $45

If the company received cash, the entry will be:

Debit Cash $3,045

Credit Notes Receivable $3,000

Credit Interest Receivable $45