Question

On January 1, Year 1, Stratton Company borrowed $200,000 on a 10-year, 7% installment note payable....

On January 1, Year 1, Stratton Company borrowed $200,000 on a 10-year, 7% installment note payable. The terms of the note require Stratton to pay 10 equal payments of $28,476 each December 31 for 10 years. The required general journal entry to record the payment on the note on December 31, Year 2 is:

Multiple Choice

  • Debit Notes Payable $200,000; debit Interest Expense $8,476; credit Cash $28,476.

  • Debit Interest Expense $14,000; debit Notes Payable $14,476; credit Cash $28,476.

  • Debit Interest Expense $12,987; debit Notes Payable $15,489; credit Cash $28,476.

  • Debit Notes Payable $14,000; debit Interest Expense $14,476; credit Cash $28,476.

  • Debit Notes Payable $28,476; credit Cash $28,476.

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Answer #1

Ans is

  • Debit Interest Expense $12,987; debit Notes Payable $15,489; credit Cash $28,476.

Working:-

Year 1 - Interest expense = $200,000 * 7% = $14,000
Principal payment = $28,476 - $14,000 = $14,476
Year 2 - Interest expense = ($200,000 - $14,476) * 7% = $12,987
Principal payment = $28,476 - $12,987 = $15,489
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