Answer:
The correct entry is:
Jan 1st, 2021
Dr Non-interest-bearing note Receivable $2,800
Cr Account Receivable $2,500
Cr Unearned Interest Revenue $300
(to record the acceptance of the non-interest-bearing note)
Explanation:
Although the note is non-interest-bearing, the acceptance for $2,800 note due in six-month for the currently due Receivable of $2,500 does imply that Plunder Inc. accept delay of receivable repayment for another 6 months at the interest income required of $300 ( 2,800 - 2,500).
This $300 is not earned at the time of note acceptance, instead, it is earned throughout the period of 6 months of the note; thus, it is recorded as unearned interest income.
That is why we have the journal entries as shown above in the Answer part.
