Genuine Parts received a promissory note from a customer on March 1,2017.The face amount of the note is $8,000;the terms are 90 days and 9% interest.At the maturity date,the customer pays the amount due for the note and interest.What entry is required on the books of Genuine Parts on the maturity date assuming none of the interest had already been recognized?
A)Increase Cash,$8,000;and decrease Notes Receivable,$8,000
B)Increase Cash,$8,180;increase Interest Revenue,$180;and decrease Notes Receivable,$8,000
C)Increase Cash,$8,720;decrease Notes Receivable,$8,000;and increase Interest Revenue,$720
D)No entry required;the customer pays amount due to the bank

Question

Quizplus · Accepted Answer

On the maturity date, Genuine Parts will receive $8,000 for the note and an additional $180 in interest calculated as ($8,000 x 9% x 90/360). Therefore, the entry required on the books of Genuine Parts would be to increase cash by $8,180, increase interest revenue by $180, and decrease notes receivable by $8,000. Option A is incorrect because it does not account for the interest earned. Option C is incorrect because it overstates the amount of cash received by including the interest earned in the entry twice. Option D is incorrect because it suggests that no entry is required when the note has matured and been paid.

Genuine Parts Received a Promissory Note from a Customer on March