Question

Jones Company has a 90-day, 12% note payable for $6,500 dated December 17 in which interest has accrued. On December 31, adjusting entries were recorded for the accrued interest and on January 1, reversing entries were recorded to prepare the accounts for the new fiscal period. On the maturity date, what is the correct journal entry to record payment of the note payable?

Answer 1

The journal entry to record the payment on the maturity date of a note payable includes paying back the principal amount and any remaining accrued interest. Reversing entries must also be taken into account when recording this transaction.

Step-by-step explanation:

The student is asking about the journal entry to record the payment of a note payable at its maturity date. On the maturity date of the 90-day, 12% note payable for $6,500 that was dated on December 17, the correct journal entry will include the principal amount of $6,500 plus any accrued interest that has not yet been paid. To calculate the interest for 90 days, you can use the formula Interest = Principal × Interest Rate × Time, where time is in years. Because reversing entries were made on January 1, you would not include the interest that was already recognized on December 31 in the payment entry since it has been reversed.

However, since the question does not require the calculation of interest, the entry on the maturity date would generally include a debit to Notes Payable for $6,500, a debit to Interest Expense for the interest accrued from January 1 to the maturity date, and a credit to Cash for the total.