A $40,000, four-month, 6.5% note payable was issued on October 1, 2015. Which of the following...
A $40,000, four-month, 6.5% note payable was issued on October 1, 2015. Which of the following would be included in the journal entry required on the note's maturity date by the borrower?
|
a debit to Interest expense for $217 |
||
|
a debit to Interest payable for $217 |
||
|
a credit to Cash for $40,000 |
||
|
a credit to Note payable for $40,867 |
Homework Answers
Correct option is "A"- a debit to Interest expense for $217
Entry At time of maturity :
| Date | Account title | Debit | credit |
| 31 Jan 2016 | Note payable | 40000 | |
| Interest payable (40000*.065*3/12) | 650 | ||
| Interest expense (40000*.065*1/12) | 217 | ||
| cash | 40867 |
**Interest for 3 months out of 4 months was accrued till last year in 2015 (1Oct -31Dec ) and of remaining one month is accrued in current year .
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