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A company converts a $1,000 account payable into a note payable by requesting an extension from a vendor. What entry records this conversion?
ADebit Cash $1,000; credit Note Payable $1,000
BDebit Note Payable $1,000; credit Accounts Payable $1,000
CDebit Accounts Payable $1,000; credit Cash $1,000
DDebit Accounts Payable $1,000; credit Note Payable $1,000
Answer & Solution
Correct answer: D. Debit Accounts Payable $1,000; credit Note Payable $1,000
1. The original account payable obligation is removed: debit Accounts Payable $1,000.
2. A new note obligation replaces it: credit Note Payable $1,000.
3. No cash changes hands at conversion, so options involving Cash are wrong.
4. Both are liabilities; one decreases (Accounts Payable) and the other increases (Note Payable).
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §5.3 "Notes Payable", p.215_
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