Question

On November 1, 2019, Bob's Burgers signed a $300,000, 6%, six-month note payable with the amount borrowed plus accrued interest due six months later on May 1, 2020. The appropriate adjusting entry was recorded on Dec 31. On May 1, 2020 while recording the journal entry for the repayment Bob's Burgers will have the following for interest payable and interest expense:
Note Payable $300,000
Interest Expense $6,000
Interest Payable $3,000
Cash $309,000
Note Payable $300,000
Interest Expense $6,000
A. Interest Payable $3.000
Cash $303,000
Cash
B. $300,000 $7,500 $1,500
C. Note Payable Interest Expense Interest Payable Cash Note Payable Interest Expense Cash $309,000 $300,000 $9.000
D.Cash $309,000 Bond D 8% 99%

Answer 1

Answer:

The entry on the date of payment would be,

Note Payable                 300000 Dr

Interest expense                 6000 Dr

Interest Payable                   3000 Dr

          Cash                                 309000 Cr

Option A is the correct answer

Explanation:

The note carried interest at the rate of 6% per annum. Thus, the total interest for the loan term of 6 month is,

Interest = 300000 * 0.06 * 6/12 = $9000

The recording of interest expense and interest payable made on 31 December 2019 as adjusting entry will have an interest expense of,

Interest expense = 300000 * 0.06 * 2/12 = $3000

Thus an amount of 3000 had been debited to interest expense and credited to the interest payable on 31 December 2019.

The interest expense remaining for the period from January 2020 to April 2020 will be = 9000 - 3000 = 6000

The entry on the date of payment would be,

Note Payable                 300000 Dr

Interest expense                 6000 Dr

Interest Payable                   3000 Dr

          Cash                                 309000 Cr