Question

Dude Duds, Inc. is a clothing retailer specializing in affordable family apparel. Prepare journal entries and related adjusting entries (if any) for the transaction below for the first quarter ending March 31 of the current year. Dude Duds received $500,000 when the company signed a promissory note with First Bank on Jan 1. Principal and interest on the 5.0% note is due at the end of 12 years. Select one: O a. Cr. Cash $500,000; Cr. Interest expense $25,000; Dr. Interest payable $25,000; Dr. Notes payable $500,000 O b. Dr. Cash $500,000; Dr. Interest expense $25,000; Cr. Interest payable $25,000; Cr. Notes payable $500,000 O c. D. Interest expense $25,000; Cr. Interest payable $25,000 O d. Trick question; no answer required O e. Dr. Interest expense $6,250; Cr. Interest payable $6,250 O f. Cr. Cash $500,000; Cr. Interest expense $6,250; Dr. Interest payable $6,250; Dr. Notes payable $500,000 g. Dr. Cash $500,000; Dr. Interest expense $6,250; Cr. Interest payable $6,250; Cr. Notes payable $500,000 Clear my choice

Answer 1

Journal entry for issuing note is:

Dr Cash	$ 500,000
Cr Notes payable		$ 500,000

Adjusting entry at the end of 1st quarter:

Dr Interest expense ($500,000*5%*3/12)	$ 6,250
Cr Interest payable		$ 6,250

So, answer is G

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