On December 1,Watson Enterprises signed a $24,000,60-day,4% note payable as replacement of an account payable with Erikson Company.What is the journal entry that should be recorded by Watson Enterprises upon signing the note?
A)Debit Accounts Receivable $24,000; credit Notes Receivable $24,000.
B)Debit Accounts Payable $24,000; credit Notes Payable $24,000.
C)Debit Accounts Payable $24,160; credit Notes Payable $24,160.
D)Debit Notes Payable $24,000; debit Interest Expense $160; credit Accounts Payable $24,160.
E)Debit Notes Payable $24,000; debit Interest Expense $160; credit Cash $24,160.

Question

Quizplus · Accepted Answer

When Watson Enterprises signs a note payable to replace an account payable, it is essentially converting a short-term liability (accounts payable) into a different form of short-term liability (notes payable). The correct journal entry to record this transaction involves debiting Accounts Payable to remove the liability from the books and crediting Notes Payable to record the new form of liability. There is no interest expense recorded at the time of signing the note; interest expense would be recognized over the life of the note or at maturity.

On December 1,Watson Enterprises Signed a $24,000,60-Day,4% Note Payable as Replacement