Question

Lion Company accepted a $15,000, 30-day, 6% note on December 16 from Diaz Co, granting a time extension on his past-due account receivable. The adjusting entry on December 31 for Lion Company would include a credit to: Multiple choice question.

Answer 1

The adjusting entry on December 31 for Lion Company would include a credit to Accounts Receivable.

Step-by-step explanation:

The adjusting entry on December 31 for Lion Company would include a credit to Accounts Receivable. When Lion Company accepts a note from Diaz Co, they are essentially making an accommodation by extending payment terms for the past-due account receivable. By crediting the Accounts Receivable account, Lion Company reduces the amount owed by Diaz Co on their balance sheet.

Answer 2

The adjusting entry on December 31 for Lion Company would include a credit to Interest Revenue for $37.50 and debit to interest receivable for $37.50.

Here, we will recognize the change in the expected collection period and making the necessary accounting adjustments..

Given information:

$15,000, 30-day, 6% note on December 16.

So, the Interest receivable is:

= [$15,000 x .06 x (15/360)]

= $37.50

Hence, the adjusting entry for Lion Company is to credit interest revenue for $37.50 and interest receivable would be debited.