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. Journalize the following transactions. Be sure to include the year in the date for both entries. Refer to the Chart of Accounts, for exact wording of account titles. Jan 1, 2016, Installment notes are issued. Jan 1, 2017, First annual note payment is made.
Notes payable are liabilities characterized by their face values and interest rates. Installment notes dictate that the principal borrowed be paid over time along with interest in predetermined installment payments. Each period a portion of the installment payment pays interest on the remaining principal balance at the beginning of the period with the remainder of the payment counting towards principal repayment.
Answer and Explanation:
|Jan. 1, 2016||Cash||$65,000||Record inflow of cash from issuance|
|Notes Payable||$65,000||Record notes payable at face value|
|Jan 1, 2017||Notes Payable||$11,531||Reduce portion of principal balance upon installment payment|
|Interest Expense||$3,900||Record interest expense for period ($65,000 x 6%)|
|Cash||$15,431||Record outflow of cash|
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from Financial Accounting: Help and ReviewChapter 8 / Lesson 7