Question

on april 12, hong company agrees to accept a 60-day, 7%, $9,600 note from indigo company to extend the due date on an overdue account. what is the journal entry that indigo company would make, when it records payment of the note on the maturity date? (use 360 days a year.)

Answer 1

Indigo Company's journal entry to record the payment of the 60-day, 7%, $9,600 note on the maturity date would include a debit to Notes Payable for $9,600, a debit to Interest Expense for $112, and a credit to Cash for $9,712.

Step-by-step explanation:

The student is asking how to record the payment of a note payable in accounting. When Indigo Company records the payment of the 60-day, 7%, $9,600 note on the maturity date, they must include both the principal amount and the interest accrued over the period. The interest can be calculated using the formula Interest = Principal × Rate × Time. Using a 360-day year, the interest on a $9,600 note for 60 days at 7% annual interest is calculated as $112.

The journal entry to record the payment on the maturity date will be:

• Debit Notes Payable $9,600 (to remove the liability for the note)
• Debit Interest Expense $112 (to record the interest cost)
• Credit Cash $9,712 (to reflect the outflow of cash, which includes both the principal and the interest)