Question

Leek Company receives a $12,000, 3-month, 5% promissory note from Rey Company in settlement of an open accounts receivable. What entry will Leek Company make upon receiving the note?

Answer 1

Leek Company will make the following entry upon receiving the promissory note: Debit: Notes Receivable - $12,000; Credit: Accounts Receivable - $12,000.

Step-by-step explanation:

When Leek Company receives a $12,000, 3-month, 5% promissory note from Rey Company in settlement of an open accounts receivable, the entry Leek Company will make is as follows:

1. Debit: Notes Receivable - $12,000 (this represents the amount of the promissory note)
2. Credit: Accounts Receivable - $12,000 (this reduces the accounts receivable since it's being settled)

By recording this journal entry, Leek Company acknowledges the receipt of the promissory note and updates its accounts accordingly.