Question

On the first day of the fiscal year, Shiller Company borrowed $170,000 by giving a seven-year,...

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

Homework Answers

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

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