When a company pays cash to redeem a interest-bearing-note, the transaction includes
A) debiting Cash and crediting Notes Payable.
B) debiting Cash and Interest Expense and crediting Notes Payable.
C) debiting Notes Payable and crediting Cash.
D) debiting Cash and crediting Notes Receivable.

Question

Quizplus · Accepted Answer

When a company pays cash to redeem an interest-bearing-note, the transaction includes debiting Notes Payable to decrease the liability and crediting Cash to decrease the asset. The interest expense has already been recognized over the life of the note, and therefore no further recognition is needed. Debiting Cash and crediting Notes Receivable would be applicable if the company is receiving cash from a customer who is repaying a loan.

When a Company Pays Cash to Redeem a Interest-Bearing-Note, the Transaction