Question

On November 1, 2018, ABC Corp. borrowed $100,000 cash on a 1-year, 6% note payable that requires ABC to pay both principal and interest on October 31, 2019. The journal entry on November 1, 2018 would include which of the following?
A. credit to Cash of $1,000B. credit to Interest Payable of $1,000C. credit to Note Payable of $1,000D. debit to Interest Expense of $6,000

Answer 1

Answer:

C) credit to Note Payable of $1,000,000

Explanation:

The complete journal records for November 1, 2018 are:

• Dr Cash account 100,000
• Cr Notes Payable account 100,000

The company received $100,000  in cash. Since cash is an asset and it increased when the bonds were issued, it should be debited.

The company has to pay a note worth $100,000. Since notes payable is a liability and it increased when the bonds were issued, it should be credited.