Question

On January 1, 2021, Corvallis Carnivals borrows $10,000 to purchase a delivery truck by agreeing to a 6%, three-year loan with the bank. Payments of $304.22 are due at the end of each month, with the first installment due on January 31, 2021. Record the issuance of the note payable and the first monthly payment.

Answer 1

The journal entries are as follows:

(i) On January 1, 2021

Delivery Truck A/c Dr. $10,000

To 6% loan note payable $10,000

(To record the issuance of note payable)

(ii) On January 31, 2021

6% loan note payable A/c Dr. $254.22

Interest expense A/c Dr. $50

To cash $304.22

(To record the first month payment)

Workings:

Interest expense = $10,000 × 6% × (1/12)

= $50