Question

On March 14, Zest Co. accepted a 120-day, 6% note in the amount of $5,000 from AZC Co., a customer. On the due date of the note, AZC dishonors the note and fails to pay. The journal entry that Zest would make to record the failure to pay this note on the due date would include a debit to:____.

A. Notes Receivable for $5,000.
B. Accounts Receivable - AZC for $5,000.
C. Cash for $5,000.
D. Cash for $5,100.
E. Accounts Receivable - AZC for $5,100.
F. Notes Receivable for $5,100.

Answer 1

Zest Co. should debit Accounts Receivable - AZC for $5,000 after AZC Co. dishonored the note, reflecting the transfer of the amount from Notes Receivable to Accounts Receivable.

Step-by-step explanation:

When AZC Co. fails to pay the note on the due date, Zest Co. must make an accounting entry to reflect the non-payment. The correct journal entry would be to remove the asset from the Notes Receivable account and recognize that the amount is now due in the form of an account receivable.

Therefore, Zest Co. would debit Accounts Receivable - AZC for the principal amount of the note, which is $5,000. Interest would also be calculated for the duration of the note, but since the interest amount is not specified in the options provided, we consider only the principal. The correct entry would not involve cash since AZC has failed to make a payment. Consequently, option B is correct: debit Accounts Receivable - AZC for $5,000.

Answer 2

C. Cash for 5,000. ……