On July 1, 2014, Goode Company borrowed $100,000. The company signed a note payable with interest at 6 percent per year. The note and interest are due on December 31, 2014. On December 31, 2014, Goode paid $103,000 to settle the debt in full. Assuming no accruals for interest have been made during the year, transaction analysis of the $103,000 cash payment on December 31, 2014 should reflect which of the following?

Question

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The payment of $103,000 will decrease the liabilities by the full amount of the note payable, which is $100,000. The remaining $3,000 represents the interest expense incurred during the year and is recorded as a decrease in stockholders' equity. The payment is also reflected as a decrease in assets by $103,000, which is the full amount paid to settle the debt.

On July 1, 2014, Goode Company Borrowed $100,000