Valley Spa purchased $10,800 in plumbing components from Tubman Co. Valley Spa S

Question

Valley Spa purchased $10,800 in plumbing components from Tubman Co. Valley Spa Studios signed a 60-day, 14% promissory note for $10,800. If the note is dishonored, what is the journal entry to record the dishonored note? (Use 360 days a year.)

Debit Accounts Receivable—Valley Spa $10,800; credit Notes Receivable $10,800.

Debit Accounts Receivable—Valley Spa $11,052, credit Interest Revenue $252; credit Notes Receivable $10,800.

Debit Bad Debt Expense $11,052; credit Accounts Receivable $11,052.

Debit Accounts Receivable $11,052; debit Bad Debt Expense $252; credit Notes Receivable $10,800.

Debit Bad Debt Expense $10,800; credit Notes Receivable $10,800.

Explanation / Answer

Journal entry for dishonour of promisory note in the books of Tumbman Co.

Debit Accounts Receivable --Valley Spa $ 11,052; Credit Interest Revenue $ 252; Credit Notes Receivable $ $ 10,800

Note: New accounts Receivable is debited with Principal amount + Interest for 60 days ; Interest receivable is credited as it is an income and Notes receivable is credited with 10800

Interest = 10800 x 14% x 60/360 = $ 252

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