BB had previously purchased inventory from L Wong for $15 000.On 1 October BB gave Wong a 60-day,bill of exchange to cover the amount of the account payable plus interest at 9% p.a.The correct accounting entry in BB's books to record the settlement of the bill at maturity is:

Question

Quizplus · Accepted Answer

Firstly, we need to calculate the total amount (including interest) that BB has to pay Wong on the due date of the bill, which is calculated as follows:

$15,000 + ($15,000 x 9% x 60/365) = $15,222

Therefore, the correct accounting entry in BB's books to record the settlement of the bill at maturity will be:

Debit Bills Payable: $15,222
Debit Interest Expense: $222 ($15,222 - $15,000)
Credit Bank: $15,222
Credit Unexpired Interest: $222 (This represents the portion of interest expense that has not yet been recognized at the time of settling the bill)

BB Had Previously Purchased Inventory from L Wong for $15