Answer:
The question is:
Prepare the journal entries for Eagle to record the loan on January 1 2017 and the four repayments from 31st December 2017 through 31st December 2020?
The answer is:
1 January 2017
Dr Cash 17,000
Cr Note Payable 17,000
31 December 2017
Dr Interest expenses 1,020
Dr Note Payable 3,886
Cr Cash 4,906
(to record note principal and interest expenses payment)
31 December 2018
Dr Interest expenses 787
Dr Note Payable 4,119
Cr Cash 4,906
(to record note principal and interest expenses payment)
31 December 2019
Dr Interest expenses 540
Dr Note Payable 4,366
Cr Cash 4,906
(to record note principal and interest expenses payment)
31 December 2020
Dr Interest expenses 277
Dr Note Payable 4,629
Cr Cash 4,906
(to record note principal and interest expenses payment)
Explanation:
Working note for the repayment transaction:
- For all the four journal entries regarding the repayment, the Cash account is debited at $4,906 because the note requires four equal payments of $4,906.
The calculations of Principal repayment ( which is recorded as Dr Note Payable and Interest expenses which is recorded as Dr Interest Expense) for each year are as below:
31 December 2017:
Interest Expenses = Outstanding Note Payable * 6% = 17,000 * 6% = $1,020;
Principal repayment = 4,906 - Interest Expenses = 4,906 - 1,020 = $3,886.
31 December 2018:
Interest Expenses = Outstanding Note Payable * 6% = (17,000-3,886) * 6% = $787;
Principal repayment = 4,906 - Interest Expenses = 4,906 - 787 = $4,119.
31 December 2019:
Interest Expenses = Outstanding Note Payable * 6% = (17,000-3,886-4,119) * 6% = $540;
Principal repayment = 4,906 - Interest Expenses = 4,906 - 540 = $4,366.
31 December 2020:
Interest Expenses = Outstanding Note Payable * 6% = (17,000-3,886-4,119-4,366) * 6% = $277;
Principal repayment = 4,906 - Interest Expenses = 4,906 - 277= $4,629.
