Question

On January 1, Avers Co. borrowed $10,000 cash from Main St. Bank by signing a 60-day, 8% interest-bearing note. On March 1, Avers pays the amount due in full. The March 1 entry would be recorded by Avers with a debit to (Accounts Payable/Notes Payable/Cash)_____ in the amount of _______.

Answer 1

Answer:

Notes Payable, $10,000

Explanation:

The journal entry when the amount is borrowed is as:

On January 1

Cash A/c.........................Dr  $10,000

      Notes Payable A/c......Cr  $10,000

Being amount borrowed from bank by signing the note

The journal entry which is to be recorded when made payment in full

On March 1

Notes Payable A/c...............................Dr   $10,000

Interest A/c............................................Dr    $133

     Cash A/c..................................................Cr    $10,133

Being the amount paid in full

Working Note:

Interest = Amount borrowed × 8% × Days / Number of days

= $10,000 × 8% × 60/365

= $133