Franklin Corporation purchased merchandise inventory with a 12%, 90-day note payable for $12,000. The company uses the perpetual inventory system. What is the journal entry to record payment of the note on the due date? (Round interest to the nearest dollar and assume a 360-day year.)

Notes payable ... Dr $12,000

Interest expense ... Dr $360

Cash $12,360

(Being notes payable repaid with interest

on due date)

Explanation:

Note is issued against any payment to be made. Note is repaid with face value and interest.

Given:

Face value of notes payable = $12,000

interest rate = 12%

Time period = 90 days

Calculation of interest expense:

= 12,000 * 0.12 * 90/360

= $360

Journal entry to record repayment of notes payable:

Particulars Debit Credit

Notes payable $12,000

Interest expense $360

Cash $12,360

(Being notes payable

repaid with interest

on due date)