Jones borrowed $960 from the bank, issuing a 12.5%, 4-month promissory note. Assuming that the note is issued and paid in the same accounting period, Jones' entry on the date of payment will include a A. Debit to Notes Payable for $960. B. Debit to Interest Payable for $40. C. Credit to Cash for $960. D. Debit to Interest Receivable for $40

Question

Stanley Hess

Business

29 January, 03:49

Jones borrowed $960 from the bank, issuing a 12.5%, 4-month promissory note. Assuming that the note is issued and paid in the same accounting period, Jones' entry on the date of payment will include a A. Debit to Notes Payable for $960. B. Debit to Interest Payable for $40. C. Credit to Cash for $960. D. Debit to Interest Receivable for $40

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Answers (1)

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Jacquelyn Mcdonald · Answer 1

(A). A Debit to Notes Payable for $960

Explanation:

In case of a promissory note, there are three parties to it, namely,

Maker i. e Jones here Payee, to whom money is to be paid i. e the bank here Holder i. e the one who currently holds the promissory note i. e the bank here

Upon issue of promissory note, in the books of the maker (Jones), the entry is,

Name Of The Bank A/C Dr. $960

To Notes Payable A/C 960

(Being a promissory note issued to bank against a payment of $960)

Upon maturity i. e date of payment, the entry would be,

Notes Payable A/C Dr. $960

To Cash/Bank A/C 960

(Being payment of promissory note honored)

Thus, the correct answer would be, (A) a debit to notes payable account for $960.