A corporation borrowed $125,000 cash by signing a 5-year, 9% installment note re

Question

A corporation borrowed $125,000 cash by signing a 5-year, 9% installment note requiring equal annual payments each December 31 of $32,136. What journal entry would the issuer record for the first payment?

1. a. Debit Interest Expense $7,136; debit Notes Payable $25,000; credit Cash $32,136.
2. b. Debit Notes Payable $32,136; debit Interest Payable $11,250; credit Cash $43,386.
3. c. Debit Interest Expense $11,250; debit Notes Payable $20,886; credit Cash $32,136.
4. d. Debit Notes Payable $32,136; credit Cash $32,136.
5. e. Debit Notes Payable $11,250; credit Cash $11,250.

Explanation / Answer

Answer: c. Debit Interest Expense $11,250; debit Notes Payable $20,886; credit Cash $32,136. Interest expense = 0.09*125,000 = 11,250. Cash paid is 32,136. Difference between cash paid and interest expense, 32,136 - 11250 = 20,886 reduces the principal.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.