Question

On January​ 1, 2018​, White Corporation signed a $ 120,000​, four​-year, 2​% note. The loan required White to make payments annually on December 31 of $ 30,000 principal plus interest.
Required:
a. Journalize the issuance of the note on January 1, 2018
b. Journalize the first payment on December 31, 2018

Answer 1

Answer:

Dr cash                 $120,000

Cr Notes payable                         $120,000

Dr interest expense    $2,400

Dr notes payable       $30,000

Cr cash                                             $32,400

Explanation:

The issuance of the notes payable of $120,000 means that White Corporation's cash inflow has increased by $120,000 while its corresponding loan obligation has also gone up by the same amount.

On 31 December 2018,White Corporation would need to repay $30,000 principal plus interest of $2,400 ($120,000*2%).The interest payment is debited to interest expense while $30,000 repayment is debited to notes payable and cash is credited with the total of $32,400