Question

Entries for Installment Note Transactions On the first day of the fiscal year, Shiller Company borrowed $63,000 by giving a five-year, 12% installment note to Soros Bank. The note requires annual payments of $17,773, with the first payment occurring on the last day of the fiscal year. The first payment consists of interest of $7,560 and principal repayment of $10,213. Journalize the entries to record the following:

a. Issued the installment note for cash on the first day of the fiscal year.
b. Paid the first annual payment on the note. For a compound transaction, if an amount box does not require an entry, leave it blank.
c. Explain how the notes payable would be reported on the balance sheet at the end of the first year.

Answer 1

Answer:

Shiller Company

Journal Entries:

a) Jan. 1 Debit Cash $63,000

Credit 12% Note Payable (Soros Bank) $63,000

To record the issuance of the five-year, 12% installment note.

December 31: Debit Note Payable (Soros Bank) $10,213

Debit Interest Expense $7,560

Credit Cash $17,773

To record the first repayment, including interest.

c. The notes payable would be reported as Long-term Liability at $52,787.

Explanation:

a) Data and Analysis:

Jan. 1 Cash $63,000 12% Note Payable (Soros Bank) $63,000

Issuance of a five-year, 12% installment note.

December 31: Note Payable (Soros Bank) $10,213 Interest Expense $7,560 Cash $17,773

Balance of Notes Payable on December 31:

Amount of note = $63,000

Repayment =           (10,213)

Balance of note = $52,787