A note receivable Mild Max Cycles discounted with recourse was dishonored on its maturity date. Mild Max would debit:
A. A loss on dishonored receivable.
B. A receivable.
C. Dishonored note expense.
D. Interest expense.
I had a problem with this question too, do a search for Ch6 since they won't let me post websites here. Look at the bottom of the examples and I think it will make it a little more clear.
To determine which account Mild Max Cycles would debit in this scenario, we need to understand the concept of dishonored receivables and the accounting treatment for such a situation.
A dishonored receivable refers to a situation where a customer fails to honor their payment obligation on a note or account receivable. When a note receivable is discounted with recourse, it means that in case of default or dishonor, the holder of the note (in this case, Mild Max Cycles) can turn to the issuer for payment.
In the case of a dishonored receivable, Mild Max Cycles would typically debit "A. A loss on dishonored receivable" on its books. This is because the dishonored receivable represents a loss to the company as it did not receive the expected payment from the customer.
So, the answer is A. A loss on dishonored receivable.
To arrive at this answer, one would need to understand the concept of dishonored receivables, the terms of the note receivable, and the general accounting treatment for such situations.