A company accepts a 90-day, 9 percent, $1,200 note from one of its customers on June 15 in settlement of its account. Which of the following journal entries records the payment at maturity in the customer's general journal form? Assume a 360-day year.
A) Debit Accounts Payable by $1,227; credit Cash by $1,227
B) Debit Notes Payable by $1,200, debit Interest Expense by $27; credit Cash by $1,227
C) Debit Notes Payable by $1,227; credit Cash by $1,227
D) Debit Accounts Payable by $1,227, credit Cash by $1,200; credit Interest Expense by $27

Question

Quizplus · Accepted Answer

The correct answer is B because it accurately reflects the payment of the principal amount of the note ($1,200) and the interest accrued ($27) with a total payment of $1,227. The interest is calculated as follows: $1,200 * 9% * (90/360) = $27. This entry correctly debits both the principal (Notes Payable) and the interest expense, and credits cash for the total amount paid.

A Company Accepts a 90-Day, 9 Percent, $1,200 Note from One