Question

Suppose a customer is unable to pay its account on time, so the company accepts a six-month interest-bearing note receivable to replace the customer's account receivable. Over the next six months, what effect will accepting the note receivable have on the company's financial statements? Multiple Choice Total revenues increase. Net income increases. All of the other answers are financial statement effects that will occur. Total assets increase.

Answer 1

Over the next six months, there will be no change in total assets.

Explanation:

It is duty of every customer to pay its account on time. In case of fail in payment, the company may add interest. Asset refers to the property owned by an individual or a business. Assets are the resources that hold future economic values.

In the given scenario, a customer is unable to pay his account on time. So the company accepts a six-month interest-bearing note for his failure of payment. In this case, there will be no change in total assets over the next six months because we are replacing one asset with another asset.