Question

alley Spa purchased $10,800 in plumbing components from Tubman Co. Valley Spa signed a 60-day, 10% promissory note for $10,800. If the note is dishonored, but Tubman intends to continue collection efforts, what is the journal entry to record the dishonored note

Answer 1

Answer: Please see explanation column for answer

Step-by-step explanation:

Interest amount =Principal (note amount) x rate x period

= $10,800 x 10% x 60/360 = $180

journal entry to record the dishonored note

Account Debit Credit

Account receivable - valley spa $10,980

Interest Revenue $180

Notes receivable $10,800

Account receivable= $10,800 +$180 =$10,980

Here, the company intends to continue with collection efforts, so the amount would be classified as the dishonored note as part of accounts receivable by Debiting the accounts receivable which would be the total of the principle and interest owed also crediting the notes receivable account for the principle amount and the interest revenue account for the interest amount.