Question

Valley spa purchased $8,700 in plumbing components from tubman co. valley spa signed a 60-day, 14% promissory note for $8,700. if the note is dishonored, but tubman intends to continue collection efforts, what is the journal entry to record the dishonored note? (use 360 days a year.)

Answer 1

If the note is dishonored and Tubman intends to continue collection efforts, then he shall record the journal entry to record the amount of note as well as the interest receivable from Valley Spa.

Step-1: Calculation of Interest receivable:

The note was issued for $8700 for 60 days period at 14% interest rate. hence the interest for the same shall be = 8700*14%*60/360 = $203

Step-2: The journal entry to record the dishonored note:

Accounts Receivable- Valley Spa Debit $8903

Interest Revenue Credit $203

Note Receivable Credit $8700