Question

g Samco signed a 5​-year note payable on January​ 1, 2018​, of $ 475 comma 000. The note requires annual principal payments each December 31 of $ 95 comma 000 plus interest at 9​%. The entry to record the annual payment on December​ 31, 2021​, includes A. a debit to Interest Expense for $ 17 comma 100. B. a debit to Interest Expense for $ 42 comma 750. C. a credit to Cash of $ 137 comma 750. D. a credit to Notes Payable for $ 95 comma 000.

Answer 1

Answer:

B. a debit to Interest Expense for $ 42 comma 750.

C. a credit to Cash of $ 137 comma 750.

Explanation:

Payment of Note Payable includes the payment of interest on the outstanding balance and principal amount of the note. In this question it is the first payment of the note payable, so the outstanding balance is the face value of the note, Interest is calculated using this value, A fix payment of $95,000 is also made.

As per given data

Principal Payment = $95,000

First Interest payment = $475,000 x 9% = $42,750

Total Payment = $95,000 + $42,750 = $137,750

Journal Entry for first payment

Dr. Interest Expense $42,750

Dr. Not Payable         $95,000

Cr. Cash                     $137,750