Question

When a note receivable is dishonored, A. the face value of the note may be written off. B. Accounts Receivable is credited if eventual collection is expected. C. bad debts expense is recorded. D. interest revenue is never recorded.

Answer 1

A. the face value of the note may be written off.

Step-by-step explanation:

A note recievable is a form of short term loan that a business gives to its clients, and it needs to be repaid at an agreed time.

If however a note recievable is dishonoured and the debtor refuses to pay the debt owed, the company can debit accounts receivable if the amount is collectible sometime in the future.

But if there is no hope of getting repayment for the amount collected the company will write off the face value of the note recievable.

When a write-off is done there is a reduction of the value of an asset due to an adverse event like nonrepayment of a loan.

Reduced value of the asset is recognised in the income statement.