Question

On November 1, Alan Company signed a 120-day, 9% note payable, with a face value of $36,000. Alan made the appropriate year-end accrual. What is the journal entry as of March 1 to record the payment of the note assuming no reversing entry was made? (Use 360 days a year.)

Multiple Choice

• Debit Notes Payable $36,000; debit Interest Expense $1,080; credit Cash $37,080.

• Debit Notes Payable $36,000; debit Interest Payable $540; debit Interest Expense $540; credit Cash $37,080.

• Debit Notes Payable $37,080; credit Interest Payable $540; credit Interest Expense $540; credit Cash $36,000.

• Debit Cash $36,540; credit Notes Payable $36,540.

• Debit Notes Payable $36,000; debit Interest Payable $540; credit Cash $36,540.

Answer 1

Note payable = 36,000

Interest rate = 9%

Interest payable on December 31 = Note payable x Interest rate x 60/360

= 36,000 x 9% x 60/360

= $540

Interest expense on March 1 = Note payable x interest rate x 60/360

= 36,000 x 9% x 60/360

= $540

The following journal entry will be made on March 1 to record the payment of note:

Debit Notes Payable $36,000; debit Interest Payable $540; debit Interest Expense $540; credit Cash $37,080.

Second option is correct.

Kindly comment if you need further assistance. Thanks