Question

On the first day of the fiscal year, a company issues $65,000, 6%, five-year installment

notes that have annual payments of $15,431. The first note payment consists of $3,900 of
interest and $11,531 of principal repayment.
a. Journalize the entry to record the issuance of the installment notes.
b. Journalize the first annual note payment.

Answer 1

Dr cash $65,000

Cr Notes payable $65,000

repayment:

Dr Notes payable $11,531

Dr interest expense $3,900

Cr Cash $15,431

Explanation:

Upon the issuance of the notes,the cash received would be debited to cash account and the same amount credited to notes payable account.

The payment of $15,431 as annual repayment on the notes payable would be credited to cash account as an outflow of cash from the business while the notes payable and interest expense accounts would be debited with $11,531 and$3,900 respectively