Question

On November 1, 2021, a company signed a $100,000, 6%, six-month note payable with the amount borrowed plus accrued interest due six months later on May 1, 2022. The company records the appropriate adjusting entry for the note on December 31, 2021. In recording the payment of the note plus accrued interest at maturity on May 1, 2022, the company would:_______

Answer 1

Answer:

note payable 100,000 debit

interest payable 1,000 debit

interest expense 2,000 debit

          cash                                103,000 credit

--to record honor of promissory note on May 1st--

Explanation:

100,000 6%

adjusting entry at year-end:

100,000 x 0.06 x 2/12 = 1,000

interest expense 1,000 debit

  interest payable         1,000 credit

then at maturity we recognize the accrued interest from Jan 1st to May 1st:

100,000 x 0.06 x 4/12 = 2,000

we also write-off the note and the payable account:

and to end the entry, we credit cash for the entire amount

note payable 100,000 debit

interest payable 1,000 debit

interest expense 2,000 debit

          cash                                103,000 credit