Question

Martinez Co. borrowed $50,000 on March 1 of the current year by signing a 60-day, 9%, interest-bearing note. Assuming a 360-day year, when the note is paid on April 30, the entry to record the payment should include a

a. debit to Interest Payable for $750
b. credit to Cash for $54,500
c. credit to Cash for $50,000
d. debit to Interest Expense for $750

Answer 1

We are given with the principal of $50,000. The interest is 9% for a 60-day period. The note is paid on April 30 which means 1 60-day period has elapsed. The note is credit since it is a cash flow out. Using the formula for simple interest:
F = P (1 + i) (n)
F = 50000 (1 + 0.9) (1)
F = 54500

The answer is
b. credit to Cash for $54,500