Question

A customer was unable to pay the accounts receivable on time in the amount of $34,000. The customer was able to negotiate with the company and transferred the accounts receivable into a note that includes interest, along with an up-front cash payment of $6,000. The note maturity date is 24 months with a 15% annual interest rate. What is the entry to recognize this transfer?

a) Debit Notes Receivable $34,000; Credit Cash $6,000; Credit Accounts Receivable $28,000
b) Debit Notes Receivable $34,000; Credit Cash $6,000; Credit Interest Revenue $28,000
c) Debit Notes Receivable $34,000; Credit Cash $6,000; Credit Notes Payable $28,000
d) Debit Notes Receivable $34,000; Credit Cash $6,000; Credit Interest Payable $28,000

Answer 1

The correct entry to recognize the transfer of the accounts receivable into a note is: Debit Notes Receivable $34,000; Credit Cash $6,000; Credit Accounts Receivable $28,000.

Step-by-step explanation:

The correct entry to recognize the transfer of the accounts receivable into a note is:

Debit Notes Receivable $34,000; Credit Cash $6,000; Credit Accounts Receivable $28,000.

By debiting Notes Receivable for $34,000, it reflects the transfer of the accounts receivable into a note. The company also receives $6,000 in cash, which is credited to Cash. The remaining balance of the accounts receivable, $28,000, is credited to Accounts Receivable.