Question

On January 1, 2021, Tropical Paradise borrows $39,000 by agreeing to a 6%, four-year note with the bank. The funds will be used to purchase a new BMW convertible for use in promoting resort properties to potential customers. Loan payments of $915.92 are due at the end of each month with the first installment due on January 31, 2021.

Required:
Record the issuance of the installment note payable and the first two monthly payments.

Answer 1

1. January 01, 2021

Dr Cash39,000.00

Cr Notes Payable39,000.00

2. January 31, 2021

Dr Interest Expense 195.00

Dr Notes Payable720.92

Cr Cash915.92

3. February 28, 2021

Dr Interest Expense 191.40

Dr Notes Payable 724.52

Cr Cash915.92

Step-by-step explanation:

Preparation of the journal entry to Record the issuance of the installment note payable and the first two monthly payments

1. January 01, 2021

Dr Cash 39,000.00

Cr Notes Payable 39,000.00

2. January 31, 2021

Dr Interest Expense 195.00

($39,000 × 6% × 1/12)

Dr Notes Payable 720.92

(915.92-195.00)

Cr Cash 915.92

3. February 28, 2021

Dr Interest Expense 191.40

([$39,000 − $720.92] × 6% × 1/12)

Dr Notes Payable 724.52

(915.92-191.40)

Cr Cash 915.92