Answer :
The journal entry made by Guarantee Company on January 1 to record the proceeds and issuance of the note would be option b.
When Guarantee Company receives the loan proceeds and issues the interest-bearing note, it needs to record the transaction correctly. The entry should reflect the cash received, the amount of interest expense accrued, and the issuance of the notes payable.
Option b. correctly records the transaction. It debits Interest Expense for the accrued interest amount of $9,012 (calculated as $100,137 x 12% x 9/12) and debits Cash for the amount of cash received, which is $91,125 (calculated as $100,137 - $9,012). It credits Notes Payable for the full amount of the note, which is $100,137.
Options a, c, and d. do not properly account for the accrued interest expense and the net cash received. Option a. does not account for the accrued interest at all. Option c. incorrectly records the cash received as higher than the actual amount. Option d. only records the issuance of the notes payable without considering the accrued interest or cash received.
Therefore, the correct entry is b. Interest Expense 9,012, Cash 91,125, Notes Payable 100,137.
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