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On the maturity date of a 60-day, 12% discounted note with a $1,000 face amount, what entry is recorded to repay the note?
ADebit Note Payable $1,000; credit Cash $1,000
BDebit Note Payable $1,000 and Interest Expense $20; credit Cash $1,020
CDebit Note Payable $980; credit Cash $980
DDebit Cash $1,000; credit Note Payable $1,000
Answer & Solution
Correct answer: A. Debit Note Payable $1,000; credit Cash $1,000
1. On a discounted note the interest was already recorded at issue, when cash received was reduced.
2. At maturity only the face amount is repaid: debit Note Payable $1,000.
3. Cash decreases by the face amount: credit Cash $1,000.
4. No Interest Expense is recorded at maturity (that was the issue-date entry), so option B (the interest-bearing pattern) is wrong.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §5.3 "Notes Payable", p.217_
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