Question

On September 1, 2016, a company issued a $50,000, 6-month, 9% note payable to purchase equipment. At December 31, 2016, the company records an adjusting entry to accrue interest incurred by not paid. The company pays the note with interest at the maturity date.

Use the information above to answer the following question. What is the entry to record the payment of interest at the maturity date of the note?

Debit Notes Payable for $50,000, debit Interest Expense for $4,500, and credit Cash for $54,500
Debit Interest Expense for $2,250 and credit Cash for $2,250
Debit Interest Expense for $2,000, debit Interest Payable for $2,500, and credit Cash for $4,500
Debit Interest Payable for $1,500, debit Interest Expense for $750, and credit Cash for $2,250

Answer 1

Debit Interest Payable for $1,500, debit Interest Expense for $750, and credit Cash for $2,250

Step-by-step explanation:

The journal entry is shown below:

Interest expense A/c Dr $750

Interest payable A/c Dr $1,500

To Cash A/c $2,250

(Being cash is paid on maturity)

The computation is shown below:

For interest payable

= $50,000 × 9% × 4 months ÷ 12 months

= $1,500

The 4 months from September 1 to December 31

For interest expense

= $50,000 ×9% × 2 months ÷ 12 months

= $750

The two months are January to February

And, the cash is $1,500 + $750 = $2,250