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28 August, 13:04

On September 1, 2016, a company issued a $50,000, 6-month, 9% note payable to purchase equipment. At December 31, 2016, the company records an adjusting entry to accrue interest incurred by not paid. The company pays the note with interest at the maturity date.

Use the information above to answer the following question. What is the entry to record the payment of interest at the maturity date of the note?

Debit Notes Payable for $50,000, debit Interest Expense for $4,500, and credit Cash for $54,500

Debit Interest Expense for $2,250 and credit Cash for $2,250

Debit Interest Expense for $2,000, debit Interest Payable for $2,500, and credit Cash for $4,500

Debit Interest Payable for $1,500, debit Interest Expense for $750, and credit Cash for $2,250

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  1. 28 August, 13:12
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    Debit Interest Payable for $1,500, debit Interest Expense for $750, and credit Cash for $2,250

    Explanation:

    The journal entry is shown below:

    Interest expense A/c Dr $750

    Interest payable A/c Dr $1,500

    To Cash A/c $2,250

    (Being cash is paid on maturity)

    The computation is shown below:

    For interest payable

    = $50,000 * 9% * 4 months : 12 months

    = $1,500

    The 4 months from September 1 to December 31

    For interest expense

    = $50,000 * 9% * 2 months : 12 months

    = $750

    The two months are January to February

    And, the cash is $1,500 + $750 = $2,250
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