If a 5%, 120-Day Note Receivable Is Acquired from a Customer

question 58

Multiple Choice

If a 5%, 120-day note receivable is acquired from a customer in settlement of an existing account receivable of $50,000, the accounting entry for acquisition of the note will:

• A) Include a debit to Notes Receivable for $50,822.
• B) Include a debit to Notes Receivable for $50,208.
• C) Include a credit to Interest Revenue for $822.
• D) Include a debit to Notes Receivable for $50,000 and no entry for interest.

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Definitions:

Tax Deductible

Expenses that can be subtracted from gross income to reduce the amount of income subject to tax.

Deferred Tax Asset

A tax benefit arising from temporary differences between the book value and tax basis of assets and liabilities, which will result in deductible amounts in future periods.

Deferred Tax Liability

A tax obligation that arises from temporary differences between the book value and tax value of assets and liabilities, to be paid in the future.

Accumulated Depreciation

The total amount of a tangible asset's cost that has been allocated as depreciation expense over the asset's useful life.