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Skysong, Inc. receives a $9500, 6-month, 6% promissory note from Sheridan Company in settlement of an open accounts receivable. What entry will Skysong, Inc. make upon receiving the note?

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Answer:

the journal entry should be:

Dr Notes receivable 9,500

    Cr Accounts receivable 9,500

Explanation:

Since Sheridan Company owed money to Skysong ($9,500), Skysong recorded that amount as an account receivable. Since the note receivable replaces the account receivable, the accounts receivable must be credited (assets decrease when credited).

If note is collected on time, the journal entry should be:

Dr Cash 9,785

    Cr Notes receivable 9,500

    Cr interest revenue 285

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