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

Business

Kason Jarvis

17 January, 01:15

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.

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Answers (1)

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Rolando Huffman · Answer 1

E) Debit Notes Payable $50,000; debit Interest Expense $625; credit Cash $50,625.

Explanation:

The journal entry to record upon maturity of the note would be

Note Payable A/c Dr $50,000

Interest Expense A/c Dr $625

To Cash A/c $50,625

(Being the maturity of the note is recorded)

The interest expense is computed below:

= Principal * rate of interest * number of days : (total number of days in a year)

= $50,000 * 5% * (90 days : 360 days)

= $625

We assume the total number of days in a year is 360 days