Entries for Installment Note Transactions On January 1 of 20Y2, Hebron Company i

Question

Entries for Installment Note Transactions

On January 1 of 20Y2, Hebron Company issued a $63,000, 4-year, 12% installment note to Ventsam Bank. The note requires annual payments of $20,742, beginning on December 31 of 20Y2.

Journalize the entries to record the following.

Issued the note for cash at its face amount.

Paid the annual payment on the note, which consisted of interest of $7,560 and principal of $13,182. If an amount box does not require an entry, leave it blank.

Paid the annual payment on the note, which included interest of $2,222. The remainder of the payment reduced the principal balance on the note. If an amount box does not require an entry, leave it blank.

20Y2 Jan. 1 Issued the note for cash at its face amount. Dec. 31 Paid the annual payment on the note, which consisted of interest of $7,560 and principal of $13,182. 20Y5 Dec. 31 Paid the annual payment on the note, which included interest of $2,222. The remainder of the payment reduced the principal balance on the note.

Explanation / Answer

Journal entry :

Date accounts & explanation debit credit Year 1 Jan. 1
Cash 63000 Notes payable 63000 (To record issue note payable) Year 1 Dec 31 Notes payable 13182 Interest expense 7560 Cash 20742 (To record installment paid) Year 4 Dec 31 Notes payable 18520 Interest expense 2222 Cash 20742 (To record installment paid)

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