Moss County Bank agrees to lend the Sadowski Brick Company $500000 on January 1.Sadowski Brick Company signs a $500000 6% 9-month note.Recording the pay off of the note and interest at maturity assuming that interest has been accrued to September 30 includes a(n)

Question

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The Sadowski Brick Company borrowed $500000 from Moss County Bank on January 1 and signed a 6% 9-month note. Since the note is for 9 months, it will mature on September 30. The interest on the note will accrue for 9 months at a rate of 6% per year, or 0.5% per month. Therefore, the interest accrued as of September 30 will be $500000 x 0.005 x 9 = $22500.
At maturity, Sadowski Brick Company will need to pay back the principal of $500000 plus the accrued interest of $22500, for a total of $522500. The journal entry to record the payoff of the note and interest at maturity would be:
Debit Notes Payable for $500000
Debit Interest Payable for $22500
Credit Cash for $522500
Therefore, the correct answer is B.

Moss County Bank Agrees to Lend the Sadowski Brick Company