Question

British Imports is unable to collect on a note worth $215,000 that has accumulated interest of $465. What is the journal entry to record the conversion of the note to accounts receivable?

a) Debit Accounts Receivable $215,465; Credit Notes Receivable $215,465
b) Debit Bad Debt Expense $215,465; Credit Notes Payable $215,465
c) Debit Accounts Receivable $214,535; Credit Notes Receivable $214,535
d) Debit Cash $215,465; Credit Notes Receivable $215,465

Answer 1

To record the conversion of a noncollectable note to accounts receivable for British Imports, the proper journal entry would be to debit Accounts Receivable for $215,465 and credit Notes Receivable for $215,465 (option a), reflecting the company's adjustment of this noncollectable amount in its books.

Step-by-step explanation:

The question pertains to recording the conversion of a noncollectable note receivable to accounts receivable in the books of a business known as British Imports.


The note is worth $215,000 with accumulated interest of $465. When a note is not collectable, the company typically makes an accounting adjustment to reflect this change in their books.

The correct journal entry to record this event would be:

• 
  
• Debit Accounts Receivable $215,465;
• 
  
• Credit Notes Receivable $215,465.

This journal entry moves the balance from Notes Receivable to Accounts Receivable, indicating that the company now considers the amount due under the general category of receivables rather than under a formal note.

The correct answer from the options provided is therefore a) Debit Accounts Receivable $215,465; Credit Notes Receivable $215,465.