Question

On January 1, 2019, Brooks Inc. borrows $90,000 from a bank and signs a 5% installment note requiring four annual payments of $25,381 at the end of each year. The first installment payment is made on December 31. Complete the necessary journal entry on 12/31 by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

Answer 1

Date Account Title Debit Credit

12/31/2019 Notes Payable $4,500

Interest expense $20,881

Cash $25,381

Working

Interest expense = 5% * 90,000

= $4,500

Notes payable = 25,381 - 4,500

= $20,881

This is the principal repayment amount.