A firm purchased equipment for $16,000 on credit and issued a 120-day note bearing interest at 9 percent as evidence of the debt. The journal entry to record payment of the note at maturity is
A)debit Notes Payable for $16,000 and credit Equipment for $16,000.
B)debit Cash for $16,480 and credit Notes Payable for $16,480.
C)debit Notes Payable for $16,480, credit Interest Expense $480, and credit Notes Payable for
$16,000.
D)debit Notes Payable for $16,000, debit Interest Expense $480, and credit Cash for $16,480.

Question

Quizplus · Accepted Answer

The correct answer is D because it reflects the payment of the principal amount ($16,000) and the interest expense ($480) with a total cash outflow of $16,480. Interest is calculated as $16,000 * 9% * (120/365) = $480.

A Firm Purchased Equipment for $16,000 on Credit and Issued