Answer:
Dr Interest Payable $10,000
Cr Notes Payable $40,000
Cr Cash $50,000
Explanation:
When the loan was raised the entry was:
Dr Cash $40,000
Cr Notes Payable $40,000
The interest on this loan was accounted for:
Dr Interest Expense $10,000
Cr Interest Payable $10,000
So the correct entry for paying interest and principal amount would be:
Dr Interest Payable $10,000
Cr Notes Payable $40,000
Cr Cash $50,000
Answer:
Debit Loan payable $40,000
Debit Interest payable $10,000
Credit Cash account $50,000
Explanation:
At the point the loan was taken, the entries posted must have been
Debit Cash account
Debit Interest expense
Credit Loan payable
Credit Interest payable
(with the loan amount and interest on the loan)
On settlement of the loan and the interest
Debit Interest payable
Debit Loan payable
Credit cash account
(with the amount paid back for the loan and interest)
