
On January 1, 2016, a business borrowed $18,000 on a five-year, 5% note payable. At December 31, 2016, the business should record
a. interest payable of $900.
b. note receivable of$18,000.
c. cash payment of $18,000.
d. nothing. (The note is already on the books.)

Interest payable on notes: The cost of debt which is payable on the face value of the note is called interest payable on notes.
To identify: The correct answer by solving the interest payable on notes payable as on December 31, 2016.
Answer to Problem 1QC
(a) Interest payable of $900
Explanation of Solution
Calculate interest payable on notes payable as on December 31, 2016, if principal amount of note is $18,000 and interest rate is given as 5%.
Note: The note is borrowed on January 1, 2016. Hence, at December 31, 2016, it is completed the period of 1 year.
Hence, options (b), (c), and (d) are incorrect and option (a) is the correct answer.
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