The correct entry to record the first payment on July 31 would be:
- Debit to Notes Payable of $9,423.34 (which is $11,223.34 - $1,800).
- Debit to Interest Expense of $1,800.
- Credit to Cash of $11,223.34.
How is it so?
1. Debit to Notes Payable: This accounts for the reduction in the principal amount of the note payable. The total payment is $11,223.34, of which $9,423.34 is applied to the principal ($11,223.34 - $1,800).
- Debit to Notes Payable: $9,423.34
2. Debit to Interest Expense: This accounts for the interest expense being recognized. The total payment is $11,223.34, and $1,800 is the interest portion.
- Debit to Interest Expense: $1,800
3. Credit to Cash: This accounts for the cash payment made.
- Credit to Cash: $11,223.34
So, the complete entry would be:
- Debit to Notes Payable: $9,423.34
- Debit to Interest Expense: $1,800
- Credit to Cash: $11,223.34
This entry reflects the reduction in the Notes Payable, the recognition of interest expense, and the payment in cash.
Complete question:
On August 1, a $30,000, 6%, 3-year installment note payable is issued by a company. The note requires equal payments of principal plus accrued interest of $11,223.34. The entry to record the first payment on July 31 would include: 2.73 points Multiple Choice ( 8 01:27:13 • Debit to Notes Payable of $11,223.34 O Debit to Interest Expense of $1,800. O Debit to Cash of $11,223.34. O Credit to Notes Payable of $11,223.34 O Credit to Cash $9,423.34