A company borrows $70,000 by signing a $70,000, 8%, 6-year note that requires equal payments of $15,142 at the end of each year. The first payment will record interest expense of $5,600 and will reduce principal by $9,542. The journal entry to record this transaction will include a debit to which of the following accounts and for how much?

Question

Mila Gentry

Business

5 January, 16:52

A company borrows $70,000 by signing a $70,000, 8%, 6-year note that requires equal payments of $15,142 at the end of each year. The first payment will record interest expense of $5,600 and will reduce principal by $9,542. The journal entry to record this transaction will include a debit to which of the following accounts and for how much?

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Answers (1)

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Korbin Wise · Answer 1

Debit interest expense amounts to $5,600 and notes payable amounts to $9,542

Explanation:

The journal entry which is to be recorded for the first payment is as:

Interest expense A/c ... Dr $5,600

Notes Payable A/c ... Dr $9,542

Cash A/c ... Cr $15,142

As the instalment or the first payment is made so cash is reduced and any decrease in asset is credited. Therefore, the cash account is credited. It is paid against the interest expense account and the notes payable account is debited.