On November 1, Alan Company signed a 120-day, 8% note payable, with a face value of $9,000.
-Alan made the appropriate year-end accrual. What is the journal entry as of March 1 to record the payment of the note assuming no reversing entry was made? (Use 360 days a year.)
A) Debit Notes Payable $9,240; credit Interest Payable $120; credit Interest Expense $120; credit Cash $9,000.
B) Debit Notes Payable $9,000; debit Interest Payable $120; credit Cash $9,120.
C) Debit Notes Payable $9,000; debit Interest Expense $240; credit Cash $9,240.
D) Debit Notes Payable $9,000; debit Interest Payable $120; debit Interest Expense $120; credit Cash $9,240.
E) Debit Cash $9,240; credit Notes Payable $9,240.

Question

On November 1, Alan Company signed a 120-day, 8% note payable, with a face value of $9,000. 
-Alan made the appropriate year-end accrual. What is the journal entry as of March 1 to record the payment of the note assuming no reversing entry was made? (Use 360 days a year.)
A) Debit Notes Payable $9,240; credit Interest Payable $120; credit Interest Expense $120; credit Cash $9,000.
B) Debit Notes Payable $9,000; debit Interest Payable $120; credit Cash $9,120.
C) Debit Notes Payable $9,000; debit Interest Expense $240; credit Cash $9,240.
D) Debit Notes Payable $9,000; debit Interest Payable $120; debit Interest Expense $120; credit Cash $9,240.
E) Debit Cash $9,240; credit Notes Payable $9,240.

Quizplus · Accepted Answer

Since the note was for 120 days at 8%, the interest for the period from November 1 to March 1 is calculated as follows:

Interest = Face value x Rate x Time
         = $9,000 x 8% x (120/360)
         = $240

Therefore, the journal entry to record the payment of the note on March 1 would be:

Debit Notes Payable $9,000
Debit Interest Payable $120 (Accrual from the year-end)
Debit Interest Expense $120 (New interest for the period)
Credit Cash $9,240 (Face value + Interest)

On November 1, Alan Company Signed a 120-Day, 8% Note