Genuine Parts received a promissory note from a customer on March 1, 2016.The face amount of the note is $8,000; the terms are 90 days and 9% interest.At the maturity date, the customer pays the amount due for the note and interest.What entry is required on the books of Genuine Parts on the maturity date assuming none of the interest had already been recognized?
A) Increase Cash, $8,000, and decrease Notes Receivable $8,000
B) Increase Cash, $8,180, increase Interest Revenue, $180, and decrease Notes Receivable, $8,000
C) Increase Cash $8,720, decrease Notes Receivable $8,000, and increase Interest Revenue, $720
D) No entry is required; the customer pays the amount due to the bank

Question

Quizplus · Accepted Answer

On the maturity date, Genuine Parts would receive the full amount of the promissory note including both the face amount and the interest accrued. Thus, the entry that should be made would be to increase Cash by $8,180 (the face amount of the note plus the interest), increase Interest Revenue by $180 (the interest earned on the note), and decrease Notes Receivable by $8,000 (the face amount of the note). Choice A is incorrect because it does not account for the interest earned on the note. Choice C is incorrect because it assumes an interest rate of 11% instead of the stated 9%. Choice D is incorrect because it does not acknowledge that the note was paid to the company and instead assumes it was paid to a bank.

Genuine Parts Received a Promissory Note from a Customer on March