Question

On November 1. Alan Company signed a 120 day, 10% note payable, with a face value of $15,000. Alan made the appropriate year-end accrual. What is the journal entry as of March 1 to record the payment of the note assuming no reversing entry was made? (Use 360 days a year.)

a. Debit Notes Payable $15,000; debt interest Payable $250;cred Cash $15.250
b. Debt Notes Payable $15,000, debit Interest Payable $250, debit interest Expense $250, credit Cash $15,500
c. Debit Cash $15.250.credit Notes Payable $15.250.
d. debit Notes Paynble $15.500 credit interest Payable $250, credit interest Expense $250, credit Cash $15,000
e. Debit Notes Payable $15,000, debit interest Expense $500, Credit Cash $15,500.

Answer 1

The correct journal entry to record the payment of the note payable would involve debiting Notes Payable for $15,000, debiting Interest Payable for $150, and crediting Cash for $15,150, which includes the payment of both the principal and the accrued interest.

Step-by-step explanation:

The correct journal entry on March 1 to record the payment of the note, assuming no reversing entry was made would be: Debit Notes Payable $15,000, debit Interest Payable $150, and credit Cash $15,150. This is based on the calculation of interest for a 120 day period on a $15,000 note at a 10% annual interest rate.

The interest for the entire period is calculated using a 360-day year as follows: $15,000 × 10% × (120/360) = $500. Assuming that Alan Company made the appropriate year-end accrual, part of the interest has already been recognized and would be in the interest payable account.

If the year-end was December 31 and the note was issued on November 1, then two months' worth of interest, which is $250 ($500 / 2), would have been accrued.

On March 1, an additional two months' worth of interest would need to be paid, making it another $250. Thus, the total payment would be the face value of the note plus the interest for four months, which is $15,000 + $500 = $15,500.