On July 1, Shady Creek Resort borrowed $340,000 cash by signing a 10-year, 9% installment note requiring equal payments each June 30 of $52,979. What is the journal entry to record the first annual payment? a. Debit Cash $340,000, debit Interest Expense $52,979, credit Notes Payable $392,979. b. Debit Interest Expense $52,979; credit Cash $52,979. c. Debit Interest Expense $30,600; credit Cash $30,600. d. Debit Interest Expense $30,600; debit Interest Payable $22,379, credit Cash $52,979.

Question

Peter Bright

Business

23 October, 16:59

On July 1, Shady Creek Resort borrowed $340,000 cash by signing a 10-year, 9% installment note requiring equal payments each June 30 of $52,979. What is the journal entry to record the first annual payment? a. Debit Cash $340,000, debit Interest Expense $52,979, credit Notes Payable $392,979. b. Debit Interest Expense $52,979; credit Cash $52,979. c. Debit Interest Expense $30,600; credit Cash $30,600. d. Debit Interest Expense $30,600; debit Interest Payable $22,379, credit Cash $52,979.

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Answers (1)

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Logan Cervantes · Answer 1

The journal entry is shown below:

Interest Expense A/c Dr $30,600

Note Payable A/c Dr $22,379

To Cash A/c $52,979

(Being payment of the first installment is recorded and the remaining balance is debited to note payable account)

The interest expense is computed below:

= Principal * rate of interest * number of months : (total number of months in a year)

= $340,000 * 9% * (12 months : 12 months)

= $30,600