Question

On April 12, Hong Company agrees to accept a 60-day, 6%, $6,900 note from Indigo Company to extend the due date on an overdue account. What is the journal entry that Indigo Company would make, when it records payment of the note on the maturity date? (Use 360 days a year.)A) Debit Cash $7,625; credit Interest Revenue $125; credit Notes Payable $7,500.B) Debit Notes Payable $7,500; debit Interest Expense $188; credit Cash $7,688.C) Debit Notes Payable $7,500; credit Interest Expense $125, credit Cash $7,375.D) Debit Notes Payable $7,500; debit Interest Expense $125; credit Cash $7,625.E) Debit Cash $7,625; credit Interest Revenue $125; credit Notes Receivable $7,500.

Answer 1

Notes payable is debited by $6,900, Interest expense is debited by $69 and cash is credited by $6,969

Step-by-step explanation:

Interest = Principal Amount * Rate * Number of days / 360

Interest = $6,900 * 6% * 60/360

Interest = $69

Cash to be paid = Principal Amount + Interest

Cash to be paid = $6,900 + $69

Cash to be paid = $6,969

On the date of maturity, the journal entry to make the payment of note payable is:

Date Account Title and Explanation Debit Credit

June 11 Note payable $6,900

Interest expenses $69

Cash $6,969

(To record the payment of notes payable along with interest)