Accounting for a long-term note payable On January 1, 2016, Locker-Farrell signed a $200,000, 10-year, 13% note. The loan required Locker-Farrell to make annual payments on December 31 of $20,000 principal plus interest.
1. Journalize the issuance of the note on January 1, 2016.
2. Journalize the first note payment on December 31, 2016.
Long-term debt refers to the borrowings of the company that will be repaid after a period of 12 months and the examples include bank loans, long-term notes payable, issuance of debt, etc. Long-term notes payable is a promissory note issued by the company to the lender to pay the principal and the accrued interest on a specified date in the future.
Answer and Explanation:
Journal entries in the books of Locker-Farrell are made below:
|1||January 1, 2016||Cash||$200,000|
|(to record the issuance of note)|
|2||December 31, 2016.||Notes Payable||$20,000|
Interest expense = Face value of note * Interest rate
Interest expense = $200,000 * 13%
Interest expense = $26,000
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from Financial Accounting: Help and ReviewChapter 8 / Lesson 7