On January 1, Shady Creek Resort borrowed $250,000 cash by signing a 10-year, 8% installment note requiring annual equal payments each December 31 of $37,258. What is the journal entry to record the second annual payment? On January 1, Shady Creek Resort borrowed $250,000 cash by signing a 10-year, 8% installment note requiring annual equal payments each December 31 of $37,258. What is the journal entry to record the second annual payment?

Question

Kenya Best

Business

21 December, 17:14

On January 1, Shady Creek Resort borrowed $250,000 cash by signing a 10-year, 8% installment note requiring annual equal payments each December 31 of $37,258. What is the journal entry to record the second annual payment? On January 1, Shady Creek Resort borrowed $250,000 cash by signing a 10-year, 8% installment note requiring annual equal payments each December 31 of $37,258. What is the journal entry to record the second annual payment?

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Devin Lamb · Answer 1

December 31, year 2, second annual payment

Dr Interest Expense account 18,619 Dr Notes Payable Account 18,639 Cr Cash account 37,258

Explanation:

The first annual payment included a $20,000 interest ( = $250,000 x 8%), therefore the principal was only reduced by $17,258 ( = $37,258 - $20,000). Remaining principal = $250,000 - $17,258 = $232,742

The second annual payment included a $18,619 interest ( = $232,742 x 8%), therefore the principal was reduced by $18,639.