Final answer:
The issuance of a $30,000 installment note increases both assets and liabilities by $30,000. The first payment of $566.14 reduces the cash and liability, and reflects interest expense of $125.
Step-by-step explanation:
On January 1, 2024, Corvallis Carnivals borrows $30,000 to purchase a delivery truck with a 5%, five-year loan. The financial statement effects of the issuance of the installment note include an increase in assets (delivery truck) and an increase in liabilities (notes payable) each by $30,000. When the first monthly payment of $566.14 is made on January 31, 2024, this payment will be split between interest expense and principal repayment. The interest for the first month can be calculated as $30,000 times 5% annual interest rate divided by 12 months, which equals $125. The remainder of the payment, $441.14 ($566.14 minus $125), will reduce the principal of the loan. The balance sheet will show a decrease in liabilities (notes payable) by $441.14 and decrease in cash by $566.14, with the income statement reflecting an interest expense of $125.