Question

On April 12, Hong Company agrees to accept a 60-day, 10%, $9,000 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

Answer 1

Answer:

The journal entry to be recorded for the payment of the note on date of maturity is shown below:

Explanation:

The journal entry to be recorded for the payment of the note on date of maturity is as follows:

Notes Payable A/c..........................Dr  $9,000

Interest expense A/c......................Dr  $148

            Cash A/c..........................................Cr  $9,148

Being payment of the note payable is reported on the maturity date

As on the day of the payment, the cash is going out of the business which means assets is decreasing and any decrease in assets is credited. Therefore, the cash account is credited. And the notes payable is paid so the notes payable account is debited and interest expense account will also be debited.

Working Note:

Interest expense = $9,000 × 10%  × 60/ 365

Interest expense = $148