A $1,200,000 note payable requires 10% annual interest with interest due monthly on the 15^th of each month.An interest payment of $10,000 was made on April 15^th and $5,000 of interest expense was accrued in an adjusting entry on April 30^th.The company makes the next interest payment due on May 15.How would the company record this transaction? A)Debit Interest Expense for $5,000 and credit Cash for $5,000. B)Debit Interest Expense for $10,000 and credit Cash for $5,000. C)Debit Interest Payable for $10,000 and credit Cash for $10,000. D)Debit Interest Expense for $5,000,debit Interest Payable for $5,000,and credit cash for $10,000. E)Debit Interest Payable for $15,000,credit Cash for $10,000,and credit Interest Expense for $5,000.

Question

Quizplus · Accepted Answer

The company had already paid $10,000 towards interest on April 15th and had accrued $5,000 as interest expense on April 30th. Therefore, the total interest due for the month of April is $15,000.

The adjusting entry made on April 30th would have increased the Interest Expense account by $5,000 and the Interest Payable account by $5,000.

Therefore, on May 15th, when the company makes the next interest payment, they would record it by debiting the Interest Expense account for $5,000 (the remaining interest due for April) and debiting the Interest Payable account for $5,000 (the interest accrued on April 30th), and crediting the Cash account for $10,000. This would result in a total interest expense of $10,000 for the month of April.

Hence, the correct answer is D.

A $1,200,000 Note Payable Requires 10% Annual Interest with Interest