Question

On September 1, 2021, Daylight Donuts signed a $170,000, 9%, six-month note payable with the amount borrowed plus accrued interest due six months later on March 1, 2022. Daylight Donuts records the appropriate adjusting entry for the note on December 31, 2021. In recording the payment of the note plus accrued interest at maturity on March 1, 2022, Daylight Donuts would: (Do not round your intermediate calculations.) Multiple Choice Debit Interest Expense, $7,650. Debit Interest Expense, $5,100. Debit Interest Expense, $2,550.

Answer 1

The correct answer is Debit Interest Expense, $5,100.

Step-by-step explanation:

Note is a promissory note with a written promise made by the borrower to the lender (payee) to pay a certain, definite sum at a specified date.

Interest expense on the notes is calculated as: Principal x Interest Rate x Time

In this case, the total interest expense is $170,000 x 9%/12 x 6 months = $7,650.

Interest expense as at December 31, 2021 is therefore $7,650 / 6 x 4 = $5,100.