Question

on august 1, a $40,800, 9%, 3-year installment note payable is issued by a company. the note requires equal payments of principal plus accrued interest of $16,118.23. the entry to record the first payment on july 31 would include:

Answer 1

The journal entry to record the first payment on July 31 would be:

Notes payable A/c.....Dr $13,307.05

Interest expense A/c.....Dr. $3,456

Cash A/c.......Cr. $16,763.05

A promissory note is a type of debt instrument in which one party—the note's issuer or maker—promises in writing to pay another party—the note's payee—a specific amount of money, either immediately or at a predetermined later date. The principal amount, interest rate, maturity date, date and location of issuance, and the issuer's signature are all typically included in a promissory note.

Par value of the note payable = $40,800

Interest rate = 9%

Annual instalment = $16,118.23

Interest expense for year 1 = Par value of note payable * Interest rate = $40,800*9% = $3,672

Principal repayment in first installment = Annual installment - Interest expense for year 1 = $16,118.23 - $3,672 = $12,446.23

Journal entry:

Notes payable A/c.....Dr $13,307.05

Interest expense A/c.....Dr. $3,456

Cash A/c.......Cr. $16,763.05

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