Question

On January 1, Avers Co. borrowed $10,000 by extending their past-due account payable with a a 60-day, 8% interest-bearing note. On March 1, the due date, Avers pays the amount due in full. This entry would be recorded by Avers with a debit to (Accounts Payable/Notes Payable/Cash)_____ in the amount of _______.
1. Cash; $10,133
2. Cash; $10,000
3. Cash: $10,800
4. Notes Payable: $10,000
5. Notes Payable: $10,133
6. Notes Payable: $10,800

Answer 1

Answer:

The correct answer is 4

Explanation:

The journal entry which is to be recorded on March 1 is as:

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

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

Avers paid the amount in full on the due date, so cash is decreasing and any decrease in cash is credited. It is paid against the note payable which decreases the liability and decrease in liability is debited. Therefore, the notes payable account is debited.

And the full payment is made on due date, there is no amount of interest is charged.