Question

On November 1, LeBron allows a customer to convert a past-due account receivable to a three-month, 8% note receivable for $6,000. Record the transaction.

Answer 1

To record the transaction of converting a past-due account receivable to a note receivable, debit the Accounts Receivable account and credit the Notes Receivable account. To recognize the interest revenue, debit the Notes Receivable account, credit the Interest Revenue account, and credit the Interest Receivable account.

Step-by-step explanation:

To record the transaction of converting a past-due account receivable to a note receivable, we need to make two journal entries. First, we debit the Accounts Receivable account to reduce the past-due amount, and credit the Notes Receivable account to increase the note receivable amount. The second entry is to recognize the interest revenue. We debit the Notes Receivable account to reduce the principal amount, credit the Interest Revenue account to record the interest earned, and credit the Interest Receivable account to recognize the interest yet to be received.

The journal entries would be as follows:

• November 1: Debit Notes Receivable $6,000; Credit Accounts Receivable $6,000
• November 1: Debit Notes Receivable $48; Credit Interest Revenue $48; Credit Interest Receivable $48