Question

Assume that Pope Enterprises held a $10,000, 10 percent, six-month note signed by Mary Drew. On December, 1, 2015, the maturity date, Drew dishonored the note. At this point, Drew owes a total of $10,500, which is comprised of the principal of $10,000 plus interest in the amount of $500 (or $10,000 x 10% x 6/12). Prepare the December 1 entry for Pope by selecting the account names and dollar amounts from the drop-down menus. If there are multiple debits or multiple credits, please enter the account titles in alphabetical order.

Answer 1

Prepare the December 1 entry for Pope:

Dr Accounts receivable 10,500

Cr Notes receivable 10,000

Cr Interest receivable 500

Since the note was dishonored, it must be turned into an account receivable. The new account receivable must include the accrued interests on the note.