Question

On May 2, Skysong, Inc. lends $52,800 to Chang, Inc., issuing a 6-month, 10% note. At the maturity date, November 2. Chang indicates that it cannot pay. 

(a) Prepare the entry to record the issuance of the note.

(b) Prepare the entry to record the dishonor of the note, assuming that Skysong, Inc. expects collection will occur. 

(c) Prepare the entry to record the dishonor of the note, assuming that Skysong, Inc. does not expect collection in the future. 

Answer 1

Answer to (a)
Date	Account titles & explanation	Debit	Credit
May-02	10% note receivable	$      52,800
	Cash		$      52,800
	(being note issued)
Answer to (b)
Date	Account titles & explanation	Debit	Credit
Nov-02	Accounts receivable	$      55,440
	10% note receivable		$      52,800
	Interest revenue		$         2,640
	(to record dishonour of note)
Answer to (c )
Date	Account titles & explanation	Debit	Credit
Nov-02	Allowance for bad debts	$      52,800
	10% note receivable		$      52,800
	(being dishonoured notes written off)