Question

The entry to record the proceeds upon issuing an interest-bearing note is:

A. Dr Cash Cr Notes Payable Cr Interest Payable

B. Dr Interest Expense Dr Cash Cr Notes Payable

C. Dr Cash Cr Notes Payable

D. Dr Notes Payable Cr Cash

Answer 1

To record the proceeds from issuing an interest-bearing note, the correct journal entry is to option c. debit cash and credit notes payable, reflecting an increase in cash assets and liabilities with no immediate interest impact.

Step-by-step explanation:

When a company with a significant revenue and profit record issues an interest-bearing note, it's creating a promise to pay back the borrowed amount and interest at a later date. The correct journal entry to record the proceeds upon issuing an interest-bearing note is option C, which is Dr Cash Cr Notes Payable. This transaction increases cash (asset) and increases notes payable (liability), with no immediate interest expense or payable recorded at the issuance of the note.