On March 15, Diego paid $7,750 to Island, Inc. to fulfill his promissory note agreement. Of the $7,750, $750 is interest. The journal entry Island, Inc. will record is to:

Question

Quizplus · Accepted Answer

Option B is the correct journal entry as it records the payment of the full amount of the note along with the interest earned. Debit Cash $7,750 represents the payment received by Island, Inc. Credit Note Receivable/Diego $7,000 represents the principal amount due on the note, and Credit Interest Revenue $750 represents the interest earned on the note.

On March 15, Diego Paid $7,750 to Island, Inc