On January 1, 2014, Gemstone Company obtained a $165,000, 10-year, 7% installmen

Question

On January 1, 2014, Gemstone Company obtained a $165,000, 10-year, 7% installment note from Guarantee Bank. The note requires annual payments of $23,492, with the first payment occurring on the last day of the fiscal year. The first payment consists of interest of $11,550 and principal repayment of $11,942. The journal entry to record the issuance of the installment note for cash on January 1, 2014 would include:

a. A debit to Notes Payable of $165,000.

b. A credit to Interest Payable of $11,550.

c. A debit to Interest Expense of $11,550.

d. A credit to Notes Payable of $165,000.

Explanation / Answer

Journal entry for issuance of installment note will be as follows

Thus answer will be d.A credit to Notes Payable of $165,000

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