Question

Flipco signed a 10-year note payable on January 1, 2016, of $800,000. The note requires annual principal payments each December 31 of $80,000 plus interest at 5%. The entry to record the annual payment on December 31, 2017, includesa. a debit to Interest Expense for $36,000.b. a debit to Interest Expense for $40,000.c. a credit to Notes Payable for $80,000.d. a credit to Cash of $120,000.

Answer 1

a debit to Interest Expense for $36,000

Step-by-step explanation:

Data provided in the question

Note payable amount = $800,000

Interest payment = $80,000

Interest rate = 5%

So, the amount is

= (Note payable amount - interest expense) × interest rate

= ($800,000 - $80,000) × 5%

= $720,000 × 5%

= $36,000

This amount would be debited to interest expense while recording the annual payment on December 31, 2017