Use the following to answer question 18: West County Bank agrees to lend the Blo
ID: 2444304 • Letter: U
Question
Use the following to answer question 18:
West County Bank agrees to lend the Block Builders Company$100,000 on January 1. Blackwood Brick Company signs a$100,000, 6%, 6-month note.
18.
What entry will Block Builders Company make to pay off the noteand interest at maturity assuming that interest has been accrued toJune 30?
A)
Notes Payable
103,000
Cash
103,000
B)
Notes Payable
100,000
Interest Payable
3,000
Cash
103,000
C)
Interest Expense
3,000
Notest Payable
100,000
Cash
103,000
D)
Interest Payable
1,500
Notest Payable
100,000
Interest Expense
1,500
Cash
103,000
19.
A company must pay the estimated income taxes for the year (page526), our journal entry would include a
A)
debit to cash
B)
credit to cash
C)
Credit to Income tax expense
D)
Debit to Deferred income tax payable.
18.
What entry will Block Builders Company make to pay off the noteand interest at maturity assuming that interest has been accrued toJune 30?
A)
Notes Payable
103,000
Cash
103,000
B)
Notes Payable
100,000
Interest Payable
3,000
Cash
103,000
C)
Interest Expense
3,000
Notest Payable
100,000
Cash
103,000
D)
Interest Payable
1,500
Notest Payable
100,000
Interest Expense
1,500
Cash
103,000
Explanation / Answer
1) C When you first take out the loan in January, you debit cash for theloan amount and credit loan payable (therefore balancing creditsand debits). In this case, the loan is for 100,000 so youoriginally debit cash 100,000 and credit loans payable 100,000. This is then reversed when you pay back the loan in June. Youeliminate the loan payable by debiting the account for the loanamount (100,000), credit the cash for the full amount you arepaying back (103,000), and debit interest expense for the interestcharge (3,000). Interest expense is an income statement itemtherefore debiting the expense makes sense. 2) Definitely B, potentially D. To pay the expense, we would pay in cash therefore depleting ourcash reserve. This would be done by crediting cash (todecrease it) and debiting tax expense (again, income statement itemso debiting the expense makes sense). Now, if we had an outstanding tax balance that also needed to bepaid. In this case, since this would be a liability andtherefore have a credit balance, in paying it off we would debitthe account.
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