If a 15%,two-Month Note Receivable Is Acquired from a Customer

question 145

Multiple Choice

If a 15%,two-month note receivable is acquired from a customer in settlement of an existing account receivable of $5,000,the accounting entry for acquisition of the note will:

• A)Include a debit to Notes Receivable for $5,750.
• B)Include a debit to Notes Receivable for $5,062.50.
• C)Include a credit to Interest Revenue for $62.50.
• D)Include a debit to Notes Receivable for $5,000 and no entry for interest.

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Definitions:

Partnership Agreement

A legal document outlining the terms and conditions under which a partnership operates.

Implied Novation

A legal concept where a new contract is assumed to replace an old one due to the actions or situations of the parties involved, without this being explicitly stated.

Actual Novation

The replacement of an existing obligation with a new one, extinguishing the original obligation and creating a new contract with different terms.

Buyout Price

The agreed amount for which an ownership interest in a business can be purchased outright.