Question
Latham has a 5%, $40,000 note receivable from the sale of merchandise on January 1, 2020. The note was issued when the market rate was
Latham has a 5%, $40,000 note receivable from the sale of merchandise on January 1, 2020. The note was issued when the market rate was 5%. The note is due December 31, 2024. Annual interest is due each December 31. On December 31, 2020, Latham reviews the collectability of its note and determines that there is a 30% probability of collecting $15,000 on the due date (and no further interest), and a 70% probability of collecting no further payments.
What is included as part of the adjusting entry that Latham records on December 31, 2020?
Debit to Bad Debt Expense of $36,298
Credit to the Allowance for Doubtful Accounts for $35,500
None of these
Debit to Bad Debt Expense of $31,702
Credit to Accounts Receivable for $25,798
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