Question

On January 1, Year 1, Stratton Company borrowed $180,000 on a 10-year, 8% installment note payable. The terms of the note require Stratton to pay 10 equal payments of $26,825 each December 31 for 10 years. The required general journal entry to record the payment on the note on December 31, Year 2 is:

Answer 1

--The required entry on Dec 31, Year 2 would be:

Date	General Journal	Debit	Credit
31 Dec Year 2	Interest Expense	$13,406
	Notes Payable	$13,419
	Cash		$26,825
	(Annual amount paid)

--The above amounts are based on following amortisation table

Period	Beginning balance	Interest Expense	Cash paid	Principal paid	Ending balance
	[A]	[B = A x 8%]	[C]	[D = C -B]	[E = A - D]
					$180,000
31 Dec Year 1	$180,000	$14,400	$26,825	$12,425	$167,575
31 Dec Year 2	$167,575	$13,406	$26,825	$13,419	$154,156