The journal entry to record the payment of note on December 31, year 2 is as follows:
Notes payable--------------Dr---------------$16,455
Interest expense-----------Dr---------------$22,500
Cash account------Cr---------------------$38,955
Therefore, 2nd option is correct.
Where,
Interest expense = Face value * Rate of interest
= $250,000 * 9%
= $22,500
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