Lathrop 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, Lathrop reviews the collectibility of its note and determines that only $15,000 is likely to be received on the due date from this note. Although Lathrop received the 2020 interest payment, the company does not expect to receive further interest payments. What is included as part of the adjusting entry that Lathrop records on December 31, 2020?

Select one:

a. Credit to Accounts Receivable for $12,341.

b. Debit to Bad Debt Expense of $27,659.

c. Debit to Bad Debt Expense of $19,432

d. Credit to the Allowance for Doubtful Accounts for $25,000.