On April 12,Hong Company agrees to accept a 60-day,10%,$4,500 note from Indigo Company to extend the due date on an overdue accounts payable.What is the journal entry needed to record the transaction by Indigo Company?
A)Debit Notes Payable $4,500; credit Accounts Payable $4,500.
B)Debit Accounts Payable $4,500; credit Notes Payable $4,500.
C)Debit Accounts Receivable $4,500; credit Notes Payable $4,500.
D)Debit Cash $4,500; credit Notes Payable $4,500.
E)Debit Sales $4,500; credit Notes Payable $4,500.

Question

Quizplus · Accepted Answer

Indigo Company is converting an accounts payable (an amount it owes) into a notes payable (a formal promissory note). Therefore, it should debit Accounts Payable to decrease the liability and credit Notes Payable to record the new liability under the terms of the note.

On April 12,Hong Company Agrees to Accept a 60-Day,10%,$4,500 Note