LO 8) On April 12, Hong Company agrees to accept a 60-day, 10%, $6,000 note from

Question

LO 8) On April 12, Hong Company agrees to accept a 60-day, 10%, $6,000 note from Indigo Company to extend the due date on an overdue account. What is the journal entry that Indigo Company would make, when it records payment of the note on the maturity date? (Use 360 days a year.)

Multiple Choice

Debit Notes Payable $6,000; debit Interest Expense $150; credit Cash $6,150.

Debit Cash $6,100; credit Interest Revenue $100; credit Notes Receivable $6,000.

Debit Notes Payable $6,000; debit Interest Expense $100; credit Cash $6,100.

Debit Notes Payable $6,000; credit Interest Expense $100, credit Cash $5,900.

Debit Cash $6,100; credit Interest Revenue $100; credit Notes Payable $6,000.

Explanation / Answer

Answer is Option C

Debit Notes Payable $6,000; debit Interest Expense $100; credit Cash $6,100

Interest amount = $ 6000 x 10% x 60/360 = $ 100

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