On September 1,Knack Company signed a $50,000,90-day,5% note payable with Central Savings Bank.What is the journal entry that should be recorded by Knack upon maturity of the note? (Use 360 days a year.)
A)Debit Interest Expense $625; credit Interest Payable $625.
B)Debit Notes Payable $50,000; credit Interest Revenue $625; credit Cash $49,375.
C)Debit Cash $50,625; credit Notes Receivable $50,625.
D)Debit Notes Payable $50,625; credit Cash $50,625.
E)Debit Notes Payable $50,000; debit Interest Expense $625; credit Cash $50,625.

Question

Quizplus · Accepted Answer

The correct journal entry upon maturity includes paying off the principal amount of the note payable ($50,000) and the interest expense. The interest expense is calculated as $50,000 * 5% * (90/360) = $625. Therefore, the total amount paid is $50,000 + $625 = $50,625, which is debited to Notes Payable and Interest Expense, and credited to Cash.

On September 1,Knack Company Signed a $50,000,90-Day,5% Note Payable with Central