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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