Martinez Co. borrowed $50,000 on March 1 of the current year by signing a 60-day, 9%, interest-bearing note. Assuming a 360-day year, when the note is paid on April 30, the entry to record the payment should include aa. debit to Interest Payable for $750b. credit to Cash for $54,500c. credit to Cash for $50,000d. debit to Interest Expense for $750

Question

Mathematics

Pooch

12 March, 03:59

Martinez Co. borrowed $50,000 on March 1 of the current year by signing a 60-day, 9%, interest-bearing note. Assuming a 360-day year, when the note is paid on April 30, the entry to record the payment should include aa. debit to Interest Payable for $750b. credit to Cash for $54,500c. credit to Cash for $50,000d. debit to Interest Expense for $750

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Aubrey Potter · Answer 1

The answer is Letter D, debit to interest expense for $750.

The solution for this problem is Interest = Principle x Rate x Time

Interest = $50,000 x 0.09 x 60 days / 360 days

= $750

It is not letter A because the normal side of a liability is credit and there was no previous record of an interest payable, so you can't reverse the entry if you will pay for the interest.

It is not letter B because the $54,000 exceeds the amount actually borrowed plus the interest which is $750.

It is not letter C because the amount you would actually pay is $50,750.

It is letter D because you'll have to debit the Interest Expense which is the normal side of an expense account in order to know the charge of the debt that has occurred during the 60 days.