Question

On January 1, 2018, Corvallis Carnivals borrows $25,000 to purchase a delivery truck by agreeing to a 6%, three-year loan with the bank. Payments of $760.55 are due at the end of each month, with the first installment due on January 31, 2018. Record the issuance of the note payable and the first monthly payment.

Answer 1

To record the issuance of the note payable and the first monthly payment, create a debit entry for the delivery truck and credit entry for the notes payable. Then, debit the notes payable to reduce the amount owed and credit the cash for the same amount to show the outflow of cash.

Step-by-step explanation:

To record the issuance of the note payable and the first monthly payment, we will first create an entry to record the note payable on January 1, 2018. We will debit the Delivery Truck account for $25,000 and credit the Notes Payable account for the same amount. This represents the borrowing of the $25,000.

Next, we will record the first monthly payment on January 31, 2018. We will debit the Notes Payable account for $760.55 to reduce the amount owed, and credit the Cash account for the same amount to show the outflow of cash.