On April 12,Hong Company Agrees to Accept a 60-Day,10%,$4,500 Note

question 204

Multiple Choice

On April 12,Hong Company agrees to accept a 60-day,10%,$4,500 note from Indigo Company to extend the due date on an overdue account.What is the journal entry that Indigo Company would make,when it records payment of the note on the maturity date? (Use 360 days a year.)

• A)Debit Notes Payable $4,500; debit Interest Expense $75; credit Cash $4,575.
• B)Debit Notes Payable $4,500; credit Interest Expense $75,credit Cash $4,425.
• C)Debit Cash $4,575; credit Interest Revenue $75; credit Notes Payable $4,500.
• D)Debit Notes Payable $4,500; debit Interest Expense $112; credit Cash $4,612.
• E)Debit Cash $4,575; credit Interest Revenue $75; credit Notes Receivable $4,500.

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Definitions:

Corporate Tax Rate

The percentage of a corporation's profits that is handed over to the government as tax.

Depreciation Expense

The allocation of the cost of a tangible asset over its useful life.

Bankruptcy

A legal process for individuals or businesses unable to meet their outstanding debts, allowing them to negotiate for partial or complete relief.

Financial Distress

A situation where a company struggles to meet or has difficulty in paying off its financial obligations to its creditors.