Question

A company lends its supplier $159,000 for 3 years at a 9% annual interest rate. Interest...

A company lends its supplier $159,000 for 3 years at a 9% annual interest rate. Interest payments are to be made twice a year. The entry to record this lending transaction includes a debit to:

Multiple Choice

  • Cash and a credit to Interest Revenue for $14,310.

  • Cash and a credit to Notes Payable for $159,000.

  • Interest Receivable and a credit to Interest Revenue for $7,155.

  • Notes Receivable and a credit to Cash for $159,000.

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Answer #1

Solution :

The Answer is (d) Notes Receivable and a credit to Cash for $159,000.

Explanation : As per the Accounting rules debited the received and credit the given and debit what comes in and credit what goes out.

Company has lent money to supplier therefore note receivable will be debited and cash has been went out so cash be will be credited. Entry is to done for lenting transaction only Interest Income will be booked once it is accrued.

Please vote up and write your doubts in comment section. Would be glad to help you further.

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