The entry to record the issuance of a check in settlement of an interest-bearing promissory note of
$4,000 and interest of $100, would be to:

Question

Quizplus · Accepted Answer

When a promissory note is settled, the company needs to debit the Notes Payable account for the principal amount and the Interest Expense account for the interest accrued. The Cash account is credited for the total amount paid. Since the interest is already accrued and recorded in the Interest Expense account, debiting this account reflects the reduction of the liability. Therefore, the correct entry is to debit Interest Expense $100, debit Notes Payable $4,000 and credit Cash $4,100. Option A is incorrect because it doesn't account for the interest expense. Option B is incorrect because it incorrectly debits Accounts Payable instead of Notes Payable. Option D is incorrect because it wrongly credits Cash twice.

The Entry to Record the Issuance of a Check in Settlement