Question

Taylor Bank lends Guarantee Company $111,104 on January 1. Guarantee Company signs a $111,104,6%, 9-month, interest-bearing note. The entry made by Guarantee Company on January 1 to record the proceeds and issuance of the note is a. Notes Payable Interest Payable Cash Interest Expense 111,104 2,500 111,104 2,500 b. Cash 111,104 Notes Payable 111,104 Cash 116,104 5,000 111,104 Interest Expense Notes Payable d. Interest Expense Cash Notes Payable 5,000 106,104 111,104

Answer 1

Answer choice (A)

Step-by-step explanation:

The correct entry made by Guarantee Company on January 1 to record the proceeds and issuance of the note is:

a. Notes Payable 111,104

Interest Payable 2,500

Cash 108,604

This entry reflects that Guarantee Company receives cash of $108,604 (the principal amount of $111,104 minus the interest of $2,500), which is recorded as a debit to Cash. The company also incurs a liability of $111,104 for the Notes Payable, which is recorded as a credit to Notes Payable. Finally, the company accrues interest expense of $2,500, which is recorded as a credit to Interest Payable.