Question

On the first day of the fiscal year, Shiller Company borrowed $170,000 by giving a seven-year, 7% installment note to Soros Bank. The note requires annual payments of $31,544 with the first payment occurring on the last day of the fiscal year. The first payment consists of interest of $11,900 and principal repayment of $19,644.

Required: Prepare the accounting entries to record the following:

a. Issued the installment note for cash on the first day of the fiscal year

b. Paid the first annual payment on the note

c. How will the notes payable be reported on the balance sheet at the end of the first year

Answer 1

· Requirement [a] and [b]

Date	Accounts title	Debit	Credit
First day	Cash	$170,000
	Notes Payable		$170,000
	(to record issuance of notes)
Last day	Interest Expense	$11,900
	Notes Payable	$19,644
	Cash		$31,544
	(to record payment)

· Requirement [c]

Balance Sheet - Partial
end of Year
Current Liabilities:
Current portion of notes Payable [see note]	$21,019
Long Term Liabilities:
Notes Payable -long term	$129,337

--Note:
>Annual instalment = $ 31544
>Principal to be paid next year = [($170000 – 19644) x 7%] - $ 31544 = $ 21019