On March 17, Grady Company agrees to accept a 60-day, 10%, $4,500 note from Alert Company to extend the due date on an overdue account. What is the journal entry needed to record the transaction by Alert Company?
A) Debit Notes Payable $4,500; credit Accounts Payable $4,500.
B) Debit Accounts Payable $4,500; credit Notes Payable $4,500.
C) Debit Accounts Receivable $4,500; credit Notes Payable $4,500.
D) Debit Cash $4,500; credit Notes Payable $4,500.
E) Debit Sales $4,500; credit Notes Payable $4,500.

Question

Quizplus · Accepted Answer

The journal entry needed to record the transaction by Alert Company is to debit Accounts Payable $4,500 and credit Notes Payable $4,500. This is because Alert Company owes Grady Company for an overdue account and is now issuing a note to extend the due date. The note payable is recorded as a liability (Notes Payable) and the accounts payable is decreased since the payment is being deferred.

On March 17, Grady Company Agrees to Accept a 60-Day