On December 1,2015,a Company Converted an Existing Account Receivable in the Amount

question 179

Multiple Choice

On December 1,2015,a company converted an existing account receivable in the amount of $6,000 to a note receivable to allow an extended payment period.The note is due in three months and includes an annual interest rate of 9%,The company prepares year-end financial statements on December 31 and recorded adjusting entries at that time.What entry should the company make on March 1,2016,when the interest is paid at maturity?

• A) Debit Cash and credit Notes Receivable for $6,135
• B) Debit Cash for $6,135, credit Notes Receivable for $6,000, and credit Interest Revenue for $135
• C) Debit Cash for $135, and credit Interest revenue for $135
• D) Debit Cash for $135, credit Interest Receivable for $45, and credit Interest Revenue for $90

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Definitions:

Aggregate Expenditure Line

A graphical representation of the total spending in an economy, including consumption, investment, government, and net exports, at various levels of income.

Marginal Propensity

The proportion of an additional increment of income that is spent on consumption. It reflects the change in consumption resulting from a change in income.

Multiplier

A factor by which an initial change in spending will alter total economic output by more than the initial monetary amount.

Marginal Propensity

A measure of how much an individual's consumption changes when their income changes.