Answer and Explanation:
The Journal entry is shown below:-
Interest Expense Dr, $17,130
Notes Payable Dr, $17,147
To Cash $34,277
(Being annual amount paid is recorded)
Here we debited the interest expenses and notes payable as it increased the expense and reduced the liabilities and we credited the cash as it also decreased the assets
Working note
For 31 Dec Year 1
Interest expenses = ($230,000 × 8%) = 18,400
Principal paid = $34,277 - $18,400 = $15,877
Ending balance = $230,000 - $15,877 = $214,123
For 31 Dec Year 2
Interest expenses = ($214,123 × 8%) = $17,130
Principal paid = $34,277 - $17,130 = $17,147
