Question 1a The interest on a $70,000, 30-day, 6% note payable is: $350 $74,200

Question

Question 1a

The interest on a $70,000, 30-day, 6% note payable is:

$350

$74,200

$70,350

$4,200

Question 1b

The maturity value of a $40,000, 90-day, 6% note payable is:

$42,400

$2,400

$40,600

$600

Question 1c

On June 8, Acme Co. issued an $80,000, 6%, 120-day note payable to Still Co. Assume that the fiscal year of Acme Co. ends June 30. What is the amount of interest expense recognized by Acme in the following (second) year?

$1,306.67

$1,200.00

$1,600.00

$1,208.89

Question 1d

The journal entry a company uses to record the issuance of a note for the purpose of borrowing funds for the business is:

debit Cash; credit Notes Payable

debit Accounts Payable; credit Notes Payable

debit Cash and Interest Expense; credit Notes Payable

debit Notes Payable; credit Cash

Question 1e

The journal entry a company uses to record the payment of a discounted note is:

debit Notes Payable; credit Cash

debit Notes Payable and Interest Expense; credit Cash

debit Accounts Payable; credit Cash

debit Cash; credit Notes Payable

$350

$74,200

Explanation / Answer

Solution.

1a ) $350

The interest on a $70,000, 30-day, 6% note payable is calculated below :

Interest rate is given only 6% not per annum hence time will be taken for 30 days and assume 360 days in a year

Interest on note payable = 70,000 X 6% X / 360

   = $350

1b) $40,600

The maturity value of a $40,000, 90-day, 6% note payable is calculated below:

Interest rate is given only 6% not per annum hence time wiil be taken for 90 days and assume 360 days in a year

Interest on note payable = $40,000 X 6% X 90 /360

   = $600

Maturity Value = Face value of note payable + Interest

= 40,000 + 600

= $40,600

1d ) Debit Cash; credit Notes Payable

The journal entry a company uses to record the issuance of a note for the purpose of borrowing funds for the business is to be

Debit cash as the cash would receive and increase (dr. what comes in )

Credit Notes Payable as the Liabilities increses for note payable ( cr. the giver )

1e)

Debit Notes Payable and Interest Expense; credit Cash

The journal entry a company uses to record the payment of a discounted note is explained below :

When there is a payment of discounted note then it is certaine that cash would decrease and

The cash is a real account it is credited ( Cr. what goes out )

The liablility is also decrease for note payable ( Dr. the receiver ) hence it is debited with discount (Dr. all expenses and losses ) as expense then both wil be debited

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