On March 14, Zest Co. accepted a 120-day, 6% note in the amount of $5,000 from AZC Co., a customer. On the due date of the note, AZC dishonors the note and fails to pay. The journal entry that Zest would make to record the failure to pay this note on the due date would include a debit to:Multiple choice question.Cash for $5,000Notes Receivable for $5,000Cash for $5,100Accounts Receivable - AZC for $5,100Accounts Receivable - AZC for $5,000Notes Receivable for $5,100
Question
On March 14, Zest Co. accepted a 120-day, 6% note in the amount of 5,000Notes Receivable for 5,100Accounts Receivable - AZC for 5,000Notes Receivable for $5,100
Solution
The correct answer is: Accounts Receivable - AZC for $5,100.
Here's why:
When AZC Co. fails to pay the note on the due date, Zest Co. would need to recognize that the note is no longer collectible. This means that the note receivable would be removed from the books and replaced with an account receivable.
The value of the account receivable would be the face value of the note plus any interest that has accrued. In this case, the face value of the note is 100 (calculated as 5,100.
So, the journal entry would be a debit to Accounts Receivable - AZC for $5,100.
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