On April 12,Hong Company agrees to accept a 60-day,10%,$4,500 note from Indigo Company to extend the due date on an overdue account.What is the journal entry that Indigo Company would make,when it records payment of the note on the maturity date? (Use 360 days a year.)
A)Debit Notes Payable $4,500; debit Interest Expense $75; credit Cash $4,575.
B)Debit Notes Payable $4,500; credit Interest Expense $75,credit Cash $4,425.
C)Debit Cash $4,575; credit Interest Revenue $75; credit Notes Payable $4,500.
D)Debit Notes Payable $4,500; debit Interest Expense $112; credit Cash $4,612.
E)Debit Cash $4,575; credit Interest Revenue $75; credit Notes Receivable $4,500.

Question

Quizplus · Accepted Answer

The correct journal entry for Indigo Company when it records the payment of the note on the maturity date includes debiting Notes Payable for the principal amount of $4,500 and debiting Interest Expense for the interest accrued, which is $75 (calculated as $4,500 * 10% * (60/360)), and crediting Cash for the total amount paid, which is $4,575 ($4,500 + $75).

On April 12,Hong Company Agrees to Accept a 60-Day,10%,$4,500 Note