Question

On December 1, 2018, Garden Products borrowed $92,000 on a 5%, 10-year note with annualinstallment payments of $9200 plus interest due on December 1 of each subsequent year. Which ofthe following describes the first installment payment made on December 1, 2019? (Round youranswer to the nearest whole number.)A) $4600 interest only B) $9200 principal plus $460 interestC) $9200 principal plus $9200 interest D) $9200 principal plus $4600 interest

Answer 1

Answer:

D) $9200 principal plus $4600 interest

Explanation:

the December 1st, 2019 payment on the note will be:

the installment on the principal and the accrued interest for the period.

interest due for the period:

92,000 x 5% = 4,600

amortization on principal

92,000 x 10% = 9,200

Total 13,800

The journal entry will be as follows:

interest expense   4,600  debit

note payable         9,200  debit

            cash                                13,800  credit

This information makes option D) the only correct answer.