Admire County Bank agrees to lend Givens Brick Company $600,000 on January 1. Gi

Question

Admire County Bank agrees to lend Givens Brick Company $600,000 on January 1. Givens Brick Company signs a $600,000, 8%, 9-month note. What entry will Givens Brick Company make to pay off the note and interest at maturity assuming that interest has been accrued to September 30?

Notes Payable.......................................................................... 636,000
                   Cash...............................................................................         636,000

Notes Payable.......................................................................... 600,000
        Interest Payable........................................................................ 36,000
                   Cash...............................................................................         636,000

Interest Expense....................................................................... 36,000
        Notes Payable.......................................................................... 600,000
                   Cash...............................................................................         636,000

Interest Payable........................................................................ 24,000
        Notes Payable.......................................................................... 600,000
        Interest Expense....................................................................... 12,000
                   Cash...............................................................................         636,000

Notes Payable.......................................................................... 636,000
                   Cash...............................................................................         636,000

Notes Payable.......................................................................... 600,000
        Interest Payable........................................................................ 36,000
                   Cash...............................................................................         636,000

Interest Expense....................................................................... 36,000
        Notes Payable.......................................................................... 600,000
                   Cash...............................................................................         636,000

Interest Payable........................................................................ 24,000
        Notes Payable.......................................................................... 600,000
        Interest Expense....................................................................... 12,000
                   Cash...............................................................................         636,000

Explanation / Answer

Interest accrued and payable is 36000$ [600000*8%*9/12]

since the interest is accrued till 30 september and is due and payable, the same will be credited to Interest Payable and will be debited when actual payment is made.

Hence the accounting entry should be :

Notes Payable A/c Dr 600000
Interest Payable A/c Dr 36000
To Cash A/c 636000

(being notes repaid along with interest)

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