Reference no: EM133011383

Problem 1: Indigo had previously purchased inventory from Larry for $40 000. On 1 October Indigo gave Larry a 90-day, bill of exchange to cover the amount of the account payable plus interest at 10% p.a. The correct accounting entry in Indigo's books to record the settlement of the bill at maturity is:

Select one:
a. Debit bills payable $40 986; debit interest expense $986; credit bank $40 986; credit unexpired interest $986
b. Debit bills payable $40 000; credit bank $40 000
c. Debit bills payable $40 986; credit interest expense $986; credit bank $40 000.
d. Debit bills payable $39 014; debit interest expense $986; credit bank $40 000