Question

On March 14, Ian Co. accepted a 180-day, 5% note in the amount of $1,000 from Ali Co., a customer. On the due date of the note, Ali dishonors the note and fails to pay. The journal entry that Ian would record on the due date would include a: (Check all that apply.)

Answer 1

On the due date, Ali dishonors the note and fails to pay. The journal entry that Ian would record on the due date would include the following:1. Debit to accounts receivable (the principal amount of the note) - $1,000.2. Credit to notes receivable (the principal amount of the note) - $1,000.3. Debit to interest receivable (unpaid interest for the note's life, $25) - $25.4. Credit to interest revenue (unpaid interest for the note's life, $25) - $25.Note that the following items should be included in the journal entry on the due date when Ian Co. accepts a 180-day, 5% note from Ali Co.:Debit to Notes Receivable (the amount of the note)Credit to Accounts Receivable (the amount of the note)Debit to Interest Receivable (the amount of interest accrued to date)Credit to Interest Revenue (the amount of interest accrued to date)On the due date, the following will be included in the journal entry when Ali dishonors the note and fails to pay:Debit to Accounts Receivable (the principal amount of the note)Credit to Notes Receivable (the principal amount of the note)Debit to Interest Receivable (unpaid interest for the note's life, $25)Credit to Interest Revenue (unpaid interest for the note's life, $25)Hence, the correct options would be: Debit to Accounts Receivable, Credit to Notes Receivable, Debit to Interest Receivable, Credit to Interest Revenue.