Question

At December 31 year-end, Crain Corporation has an S8400 note receivable from a customer. Interest of 10% has accrued for 10 months on the note What will Crain's financial statements report for this situation at December 31?

A. The balance sheet will report the note receivable of $8,400
B. The balance sheet will report the note receivable of $8,400 and interest receivable of $700 °
C. Nothing because the business has not received the cash yet.
D. The income statement will report a note receivable of $8,400

Answer 1

A) The balance sheet will report the note receivable of $8,400

Step-by-step explanation:

Notes receivables and promissory notes are part of the Notes Receivables account, which is an asset account in the balance sheet. They are recorded as follows:

• Dr Notes Receivable account 8,400
• Cr Accounts Receivable account 8,400

Both accounts are asset accounts, but notes receivable is replacing accounts receivable. Therefore since notes receivable is increasing, it should be debited, and since accounts receivable is decreasing, it should be credited.

You don't record any interest, only after the interest is paid, you should record it as interest revenue.