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A company issues a 60-day, 12% interest-bearing note payable for $1,000, receiving cash. What entry records the receipt of the loan proceeds on the issue date?
ADebit Note Payable $1,000; credit Cash $1,000
BDebit Cash $1,000; credit Note Payable $1,000
CDebit Cash $980; credit Note Payable $980
DDebit Cash $1,020; credit Note Payable $1,020
Answer & Solution
Correct answer: B. Debit Cash $1,000; credit Note Payable $1,000
1. For an interest-bearing note, interest is paid at maturity, not at issue.
2. The borrower receives the full principal in cash: debit Cash $1,000.
3. The obligation to repay is recorded: credit Note Payable $1,000.
4. Option C reflects a discounted note (interest taken up front); this is interest-bearing, so the full $1,000 is received.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §5.3 "Notes Payable", p.215_
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