Grayson Bank agrees to lend the Trust Company $100,000 on January 1. Trust Company signs a $100,000, 8%, 9-month note. The entry made by Trust Company on January 1 to record the proceeds and issuance of the note is:
A) Interest Expense 8,000 Cash 92,000
Notes Payable 100,000
B) Cash 100,000 Notes Payable 100,000
C) Cash 108,000 Interest Expense 8,000
Notes Payable 108,000
D) Notes Payable 100,000 Interest Payable 6,000
Cash 100,000
Interest Expense 6,000

Question

Quizplus · Accepted Answer

Trust Company receives cash of $100,000 from Grayson Bank, and issues a note payable for the same amount, with an interest rate of 8% and a term of 9 months. Therefore, the correct entry is to record the cash received and the note payable issued, with no interest expense or interest payable recorded yet. Choice A is incorrect because it records interest expense before it is due. Choice C is incorrect because it records the cash received and an additional $8,000 interest expense, which is not due until later. Choice D is incorrect because it records interest payable, which is not due until later, and also records interest expense before it is due.

Grayson Bank Agrees to Lend the Trust Company $100,000 on January