On November 1,Alan Company signed a 120-day,8% note payable,with a face value of $9,000.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 $9,000; debit Interest Payable $120; credit Cash $9,120.
B)Debit Cash $9,240; credit Notes Payable $9,240.
C)Debit Notes Payable $9,240; credit Interest Payable $120; credit Interest Expense $120; credit Cash $9,000.
D)Debit Notes Payable $9,000; debit Interest Payable $120; debit Interest Expense $120; credit Cash $9,240.
E)Debit Notes Payable $9,000; debit Interest Expense $240; credit Cash $9,240.

Question

Quizplus · Accepted Answer

The note payable was outstanding for 120 days from November 1 to March 1, which is a 4-month period. Using the 360-day year assumption, the interest accrued on the note is calculated as follows: $9,000 x 8% x 4/12 = $240. The journal entry to record the payment of the note on March 1 is to debit Notes Payable for the principal amount of $9,000, debit Interest Payable for the accrued interest of $120, debit Interest Expense for the additional interest of $120, and credit Cash for the total payment of $9,240. Therefore, option D is the correct answer.

On November 1,Alan Company Signed a 120-Day,8% Note Payable,with a Face