Question

Entries for Installment Note Transactions

On January 1, Year 1, Luzak Company issued a $69,000, 4-year, 9% installment note to McGee Bank. The note requires annual payments of $21,298, beginning on December 31, Year 1.

Journalize the entries to record the following:

Year 1
Jan. 1	Issued the note for cash at its face amount.
Dec. 31	Paid the annual payment on the note, which consisted of interest of $6,210 and principal of $15,088.
Year 4
Dec. 31	Paid the annual payment on the note, including $1,759 of interest. The remainder of the payment reduced the principal balance on the note.

Issued the note for cash at its face amount.

Year 1, Jan. 1	Cash
	Notes Payable

Paid the annual payment on the note, which consisted of interest of $6,210 and principal of $15,088. For a compound transaction, if an amount box does not require an entry, leave it blank.

Year 1, Dec. 31

Paid the annual payment on the note, including $1,759 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

Answer 1

Date	journal	debit	credit
Year 1, jan 1	cash	$69000
	To notes payable		$69000
	(To record notes payable issued for cash)
31 dec	interest expense	$6210
	To interest payable		$6210
	(Being interest expense accrued at the end of the year)
31 dec.	Interest payable	$6210
	Notes payable	$15088
	To cash		$21298
	( To record the payment of annual installment)
Year 4, 31 dec.	Interest expense	$1759
	To interest payable		$1759
	(Being interest expense accrued)
31 dec.	Interest payable	$1759
	Notes payable	$19539
	To cash		$21298
	( To record the payment of annual installment)

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