On January 1, 2010, Yeargan Company obtained an $88,000, seven year 5% installme

Question

On January 1, 2010, Yeargan Company obtained an $88,000, seven year 5% installment note from Farmers Bank. The note requires annual payments of $15,208, with the first payment occurring on the last day of the fiscal year. The first payment consists of $4,400 interest and principal repayment of $10,808.

Requirement:

(1) Journalize the following entries:
a. Issued the installment notes for cash on January 1, 2010.
b. Paid the first annual payment on the note.
(2) Determine the amount of interest expense on the note for the first year.

Explanation / Answer

(1) Journalize the following entries(If required, round all amounts to the nearest whole dollar.) (a) Issue the installment notes for cash on January 1 2010. Asset A/c Dr 88000 Installment Note Payable Cr 88000 To record the purchase of Asset with a $88,000 7-year, 5% Installment Note (b) Paid the first annual payment on the note Installment Note Payable Dr 10808 Int expense Dr 4400 Cash Cr 15208 To record the Dec 31, 2010 payment of principal and interest on the Note (2) determine the amount of the bond interst expense for the first year. Bond Int expense for Year 2010 is 4400

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