On December 1,Victoria Company signed a 90-day,6% note payable,with a face value of $15,000.Assuming the company does not prepare reversing entries,what is the journal entry to record the repayment of the note on March 1?
A)Debit Notes Payable,$15,225; Credit Cash,$15,225.
B)Debit Notes Payable,$15,000; Credit Cash,$15,000.
C)Debit Notes Payable,$15,000; Debit Interest Expense,$225; Credit Cash,$15,225.
D)Debit Notes Payable,$15,000; Debit Interest Expense,$150; Debit Interest Payable,$75; Credit Cash,$15,225.
E)Debit Notes Payable,$15,075; Debit Interest Expense,$150; Credit Cash,$15,225.

Question

Quizplus · Accepted Answer

The initial entry to record the note payable would have been:

Debit Cash (or other asset) $15,000
Credit Notes Payable $15,000

On March 1, when the note is paid, Victoria Company needs to record the repayment, as well as any interest that has accrued. Since the note had a 6% interest rate for 90 days, the interest accrued would be:

$15,000 x 6% x 90/360 = $150

Therefore, the entry to record the repayment would be:

Debit Notes Payable $15,000
Debit Interest Expense $150
Debit Interest Payable $75 ($225 - $150)
Credit Cash $15,225

This entry records the reduction of the Notes Payable account by the face value of the note, the recognition of the interest expense incurred over the life of the note, and the payment of cash to retire the note.

On December 1,Victoria Company Signed a 90-Day,6% Note Payable,with a Face