On September 1,Knack Company signed a $50,000,90-day,5% note payable with Central Savings Bank.What is the journal entry that should be recorded by Knack upon maturity of the note?
A)Debit Interest Expense $625;credit Interest Payable $625.
B)Debit Notes Payable $50,000;credit Interest Revenue $625;credit Cash $49,375.
C)Debit Cash $50,625;credit Notes Receivable $50,625.
D)Debit Notes Payable $50,625;credit Cash $50,625.
E)Debit Notes Payable $50,000;debit Interest Expense $625;credit Cash $50,625.

Question

Quizplus · Accepted Answer

Upon maturity, Knack Company needs to pay back the principal amount of the note ($50,000) plus the interest accrued over 90 days. The interest is calculated as $50,000 * 5% * (90/365) = $625. Therefore, the journal entry would be to debit Notes Payable for $50,000, debit Interest Expense for $625, and credit Cash for the total amount of $50,625.

On September 1,Knack Company Signed a $50,000,90-Day,5% Note Payable with Central