26 On October 1 20X1 Marco signs aoneyear8 note payable for

26. On October 1, 20X1 Marco signs aone-year,8% note payable for $10,000 with principle and interest due on October 1, 20X2. It is MarCo\'s only note outstanding. On October 1, 20X2 when the note is paid, MarCo deb- its Notes Payable and credits Cash for $10,800, the sum of principle and interest. This error is likely to be found because... a. the bank reconciliation will be out of balance when the check clears b. the trial balance will be out of balance by $800 c. the trial balance will show a balance in Notes Payable that is not normal d. interest expense will be understated While writing a check for $2,000 on April 26, 20X2 for a computer purchased aon the nurchase was made in 27,

Solution

Answer 26 -c. the trial balance will show a balance in Notes Payable that is not normal. The entry passed by MarCo: Particulars Dr. Amt. Cr. Amt. Notes Payable          10,800 Cash          10,800 The correct entry to be passed by MarCo: Particulars Dr. Amt. Cr. Amt. Notes Payable          10,000 Interest Expense                800 Cash          10,000 In this case, there is only one Notes Payable is outstanding and on passing the wrong entry as shown above, the balance in Notes payable will be $800 (Debit Balance). The debit balance in Notes Payable is showing that something is wrong or wrong entry has been passed. So, error will be found after analysing the Notes Payable Account. other Options are incorrect as Bank Reconciliation will be balanced since amount of the payment is correct. Trial Balance is also balanced, since debit and credit of the amount is same. By analysing Interest expesne we cannot tell whether it is understated or not. Only by analysing the notes payable account, we can found the error.