If D -...

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If D. Brown dishonors the note and the company believes the note is a bad debt,  allowance for bad debts is debited for $2,500 and notes receivable is credited for  $2,500. No interest revenue is recognized because none will ever be received. If interest on a bad debt had previously been accrued, then a correcting entry is needed  to remove the accrued interest from interest revenue and interest receivable (by debiting  interest revenue and crediting interest receivable). Although interest revenue would have 
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