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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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