Question

On January 1, 2021, Tropical Paradise borrows $38,000 by agreeing to a 6%, five-year note with the bank. The funds will be used to purchase a new BMW convertible for use in promoting resort properties to potential customers. Loan payments of $734.65 are due at the end of each month with the first installment due on January 31, 2021.

Required:
Record the issuance of the installment note payable and the first two monthly payments.

Answer 1

The record for the issuance of the installment note payable and the first two monthly payments would be as follows:

January 01, 2021

Debit Credit

Cash 38,000

Notes Payable 38000

January 31, 2021

Interest Expense 190.00

Notes Payable 544.65

Cash 734.65

February 28, 2021

Interest Expense 187.27

Notes Payable 547.37

Cash 734.65

Step-by-step explanation:

The record for the issuance of the installment note payable and the first two monthly payments would be as follows:

January 01, 2021

Debit Credit

Cash 38,000

Notes Payable 38000

January 31, 2021

Interest Expense 190.00

Notes Payable 544.65

Cash 734.65

Interest Expense=38,000*6%/12

Interest Expense=$190

February 28, 2021

Interest Expense 187.27

Notes Payable 547.37

Cash 734.65

Interest Expense=(38000-544.65)*6%/12

Interest Expense=187.27