Question

On January 1, MM Co. borrows $350,000 cash from a bank and in return signs an 4% installment note for five annual payments of $78,619 each. 1. Prepare the journal entry to record issuance of the note. 2. For the first $78,619 annual payment at December 31, what amount goes toward interest expense? What amount goes toward principal reduction of the note?

On January 1, MM Co. borrows $350,000 cash from a bank and in return signs an 4% installment note for five annual payments of $78,619 each. 1. Prepare the journal entry to record issuance of the note. 2. For the first $78,619 annual payment at December 31, what amount goes toward interest expense? What amount goes toward principal reduction of the note? Complete this question by entering your answers in the tabs below. Required 1 Required 2

Answer 1

Solution 1) Journal Entries in the books of MM Co. Date Accounts Titles Debit Credit Cash $3,50,000 Note Payable $3,50,000 (To record Issuance of Note payable against borrowing) Solution 2) Annual Payment less : Interest ( $350,000 x 4%) Principal reduction $ $ $ 78,619 14,000 64,619 Interest Expense $ 14,000 Note Payable $ 64,619 Cash (To record payment of Annual Installment) $ 78,619

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