On the first day of the fiscal year, Hammond Company borrowed $39,000 by giving

Question

On the first day of the fiscal year, Hammond Company borrowed $39,000 by giving a four-year, 10% installment note to Vegas Bank. The note requires annual payments of $12,429, with the first payment occurring on the last day of the fiscal year. The first payment consists of interest of $3,900 and principal repayment of $8,529. Journalize the entries to record the following: 1. Issued the installment note for cash on the first day of the fiscal year. 2 Paid the first annual payment on the note. For a compound transaction, if an amount box does not require an entry, leave it blank.

Explanation / Answer

Journal entries: Date Accounts title and explanations Debit $ Credit $ Day1 Yr-1 Cash account Dr. 39,000     4-Yr 10% instalment Note payable 39000 End Yr-1 4-Yr 10% instalment Notes payable Dr. 8,529 Interest expense Account Dr. 3,900       Cash account 12429

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