Question

I’m January one year one Stratton company borrows 130,000 on a 10 year 8% installment note payable the terms of the note require Stratton to pay 10 equal payments of 19,374 each December 31 for 10 years the required general journey entry to record the payment on the note of December 31 year two is

Answer 1

The student is inquiring about the accounting entry for the second payment of an installment note. The entry will affect the Interest Expense, Notes Payable, and Cash accounts. An example illustrates the importance of understanding loan terms and the cost of interest over time.

Step-by-step explanation:

The student is asking for the general journal entry required to record an installment payment for a note payable on December 31 of the second year. The Stratton company took a $130,000 loan at an 8% interest rate with 10 equal annual payments.

As per the terms, the company needs to make payments of $19,374 each year on December 31st for 10 years. For the year two payment, the entry would include a debit to the Interest Expense and the Notes Payable accounts and a credit to Cash. After the second payment, the total interest paid and the principal reduction can be calculated to provide the specific amounts for the journal entry.

In the provided example, if someone borrows $1,000,000 on a 30-year installment note, they will pay a total of more than $2.1 million after 30 years. This illustrates the significant impact of interest on long-term loans and the importance of understanding the terms of a loan before agreeing to them. Care should be taken when incurring debt to ensure that it is manageable and not excessively burdensome over time.