Question

Entries for Installment Note Transactions On January 1, Year 1, Luzak Company issued a $32,000, 4-year, 11% installment note to McGee Bank. The note requires annual payments of $10,314, beginning on December 31, Year 1. Journalize the entries to record the following. Year 1 Jan. 1 Issued the notes for cash at its face amount. Dec. 31 Paid the annual payment on the note, which consisted of interest of $3,520 and principal of $6,794. Year 4 Dec. 31 Paid the annual payment on the note, including $1,022 of interest. The remainder of the payment reduced the principal balance on the note. Issued the notes for cash at its face amount. Year 1 Jan. 1 Cash Notes Payable Feedback The cash payment is the same in each year. The interest and principal repayment, however, change each year. This is because the carrying amount (book value) of the note decreases each year as principal is repaid, which decreases the interest. After the final payment, the carrying amount on the note is zero, indicating that the note has been paid in full. Paid the annual payment on the note, which consisted of interest of $3,520 and principal of $6,794. For a compound transaction, if an amount box does not require an entry, leave it blank. Year 1 Dec. 31 Interest Expense Notes Payable Cash Paid the annual payment on the note, including $1,022 of interest. The remainder of the payment reduced the principal balance on the note. For a compound transaction, if an amount box does not require an entry, leave it blank. Year 4 Dec. 31 Interest Expense Notes Payable Cash

Answer 1

Solution :

Journal Entries - Luzak Company
Year	Date	Particulars	Debit	Credit
1	1-Jan	Cash Dr	$32,000.00
		To Notes Payable		$32,000.00
		(Being loan taken by issuing note)
1	31-Dec	Interest Expense Dr	$3,520.00
		Notes Payable Dr	$6,794.00
		To Cash		$10,314.00
		(To record first installment payment on note)
4	31-Dec	Interest Expense Dr	$1,022.00
		Notes Payable Dr	$9,292.00
		To Cash		$10,314.00
		(To record final installment payment on note)