Melanie Corp. borrowed $100,000 cash on September 1, 2016, and signed a one-year 6%, interest-bearing note payable. The interest and principal are both due on August 31, 2017. Assume that the appropriate adjusting entry was made on December 31, 2016 and that no adjusting entries have been made during 2017. Which of the following would be the required journal entry to pay the note on August 31, 2017?

Question

Quizplus · Accepted Answer

The journal entry to pay the note on August 31, 2017, would be:
Debit: Note Payable for $100,000 
Debit: Interest Expense for $2,000 (6% x $100,000 x 12/12)
Credit: Cash for $102,000
Option A is incorrect because it only shows the payment of the principal and not the interest. 
Option C is incorrect because it debits Interest Payable, which is not the correct account to debit when paying off the note. 
Option D is incorrect because it only shows the payment of the interest and not the principal.