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3 June, 02:52

Jones borrowed $960 from the bank, issuing a 12.5%, 4-month promissory note. Assuming that the note is issued and paid in the same accounting period, Jones' entry on the date of payment will include a A. Debit to Notes Payable for $960. B. Debit to Interest Payable for $40. C. Credit to Cash for $960. D. Debit to Interest Receivable for $40

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  1. 3 June, 03:17
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    (A). A Debit to Notes Payable for $960

    Explanation:

    In case of a promissory note, there are three parties to it, namely,

    Maker i. e Jones here Payee, to whom money is to be paid i. e the bank here Holder i. e the one who currently holds the promissory note i. e the bank here

    Upon issue of promissory note, in the books of the maker (Jones), the entry is,

    Name Of The Bank A/C Dr. $960

    To Notes Payable A/C 960

    (Being a promissory note issued to bank against a payment of $960)

    Upon maturity i. e date of payment, the entry would be,

    Notes Payable A/C Dr. $960

    To Cash/Bank A/C 960

    (Being payment of promissory note honored)

    Thus, the correct answer would be, (A) a debit to notes payable account for $960.
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