Question

On August 1, a $43,200, 8%, 3-year installment note payable is issued by a company. The note requires equal payments of principal plus accrued interest of $16,763.05. The entry to record the first payment on July 31 would include:________
A. Debit to Interest Expense of 3,192.00
B. Credit to cash 14,183.96
C. Credit to Notes payable of 17,375.96
D. Debit to Cash of 17,375.96
E. Debit to Notes payable of 17,375.96

Answer 1

Answer:

Par value of note payable = $43,200

Interest rate = 8%

Annual installment = $16,763.05

Interest expense for year 1 = Par value of note payable * Interest rate = $43,200*8% = $3,456

Principal repayment in first installment = Annual installment - Interest expense for year 1 = $16,763.05 - $3,456 = $13,307.05

General Journal          Debit           Credit

Notes payable          $13,307.05

Interest expense      $3,456

Cash                                               $16,763.05