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A $1,000 note at 12% per annum reaches its 60-day maturity date and the customer pays in full. Using a 360-day year, what entry records the receipt?
ADebit Cash $1,000; credit Note receivable $1,000
BDebit Cash $1,020; credit Note receivable $1,020
CDebit Note receivable $1,020; credit Cash $1,000 and Interest revenue $20
DDebit Cash $1,020; credit Note receivable $1,000 and Interest revenue $20
Answer & Solution
Correct answer: D. Debit Cash $1,020; credit Note receivable $1,000 and Interest revenue $20
1. Interest = $$\$1{,}000 \times 12\% \times \frac{60}{360} = \$20$$
2. Cash received = principal + interest = $1,000 + $20 = $1,020, debited.
3. Note receivable is cleared at its $1,000 principal; the $20 is Interest revenue.
4. One distractor omits interest; another credits the whole $1,020 to the note; another reverses the entry. All are wrong.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §4.3.2 "Maturity (Due) Date", p.135_
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