A bank loaned Darden Company $10,000 on a one-year,6% note,but deducted the interest in advance.The journal entry made by Darden to record receipt of the cash would include a(n)
A)increase in cash for $9,400.
B)increase in cash for $600.
C)decrease in notes payable for $10,600.
D)decrease in notes payable for $9,400.

Question

Quizplus · Accepted Answer

When the bank deducts the interest in advance, it means that they are only giving Darden $9,400 (which is 94% of $10,000). Therefore, the entry would be an increase in cash for $9,400.

A Bank Loaned Darden Company $10,000 on a One-Year,6% Note,but