On January 1, 2017, MM Co. borrows $290,000 cash from a bank and in return signs

Question

On January 1, 2017, MM Co. borrows $290,000 cash from a bank and in return signs an 4% installment one for five annual payments of $65,142 each, with the first payment due one year after the note is signed. Table B.3) (Use PV factors from table provided.) 1. Prepare the journal entry to record issuance of the note. View transaction list Journal entry worksheet Record the issuance of the note Note: Enter debits before credits. Date General Journal Debit Credit Jan 01 Record entry Clear entry View general journal

Explanation / Answer

The entry for Issuance of the note is

Cash A/c Dr $290000

To Instalment Note A/c $290000

The debit is to cash as the installment note was issued in respect of new borrowings, and cash is received by the business. The credit entry represents a liability of the business to repay the note in accordance with the terms agreed. In the balance sheet, the installments notes will either be current or long term liabilities depending on whether or not the amount outstanding is due within one year.

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