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18 December, 12:17

Franklin Corporation purchased merchandise inventory with a 12%, 90-day note payable for $12,000. The company uses the perpetual inventory system. What is the journal entry to record payment of the note on the due date? (Round interest to the nearest dollar and assume a 360-day year.)

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  1. 18 December, 13:29
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    Notes payable ... Dr $12,000

    Interest expense ... Dr $360

    Cash $12,360

    (Being notes payable repaid with interest

    on due date)

    Explanation:

    Note is issued against any payment to be made. Note is repaid with face value and interest.

    Given:

    Face value of notes payable = $12,000

    interest rate = 12%

    Time period = 90 days

    Calculation of interest expense:

    = 12,000 * 0.12 * 90/360

    = $360

    Journal entry to record repayment of notes payable:

    Particulars Debit Credit

    Notes payable $12,000

    Interest expense $360

    Cash $12,360

    (Being notes payable

    repaid with interest

    on due date)
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