Question

On November 1, Year 1 Cove Company borrowed $7,000 cash from Shelter Company. Cove issued a one-year note that carried a 7% annual rate of interest. Which of the following journal entries would be necessary to record the issue of the note on November 1, Year 1?

Multiple Choice
A. Account Titles Debit Credit Cash 7,000 Notes Payable 7,000
B. Account Titles Debit Credit Notes Payable 7,000 Cash 7,000
C. Account Titles Debit Credit Cash 490 Interest Payable 490
D. Account Titles Debit Credit Interest Paya

Answer 1

The correct journal entry to record Cove Company's borrowing on November 1, Year 1, is to debit Cash for $7,000 and credit Notes Payable for $7,000, reflecting the cash inflow and resulting liability.

Step-by-step explanation:

The appropriate journal entry to record the issuance of a note by Cove Company on November 1, Year 1, after borrowing $7,000 cash from Shelter Company at a 7% annual interest rate is the following:

• Account Titles: Debit
• Cash: $7,000
• Account Titles: Credit
• Notes Payable: $7,000

This entry represents the inflow of cash into the company (debit to the Cash account), and it establishes the liability that Cove Company has for the amount borrowed (credit to Notes Payable).

The correct answer is A: Cash $7,000; Notes Payable $7,000

. There is no need to record interest expense or interest payable at the time of borrowing because the interest for the note will be accrued over the period the note is outstanding, not when the note is issued.